Principles in Practice: The Blog of the Objective Standard

Wednesday, March 28, 2007

In Defense of Income Inequality by Peter Schwartz

Posted by ARI Media at 11:28 AM

Income inequality used to be a rabble-rousing issue of the left. Now it is being raised by mainstream figures, from the head of the Federal Reserve to President Bush, who are apologetically trying to offer solutions. But what is the actual problem they wish to solve? Certainly, it is not a growth in poverty. To the contrary, between 1979 and 2006—the period during which income inequality has supposedly become more acute—real wages for the median worker rose 11.5%. Even workers in the lowest tenth percentile had an increase of 4%.

No, the alleged problem is not that some are becoming poor—but that others are too rich. The complaint is that while the bottom tier enjoyed a 4% rise in income, the top tier enjoyed a 34% increase. The complaint is that over the past 25 years, the share of income of the top fifth of households climbed from 42% to 50%, while that of the bottom fifth fell from 7% to 5%.

But this development represents an injustice only if we use a perverse standard of evaluation. It is unjust only if we measure someone's economic status not by what he has, but by what others have—i.e., only if he benefits not by making more money, but by making his neighbor have less.

This is the standard of egalitarianism—the standard that demands a uniformity of income, regardless of anyone's ability or effort. It is the standard of envy, whereby a problem exists whenever some have more, of anything, than others. And the egalitarian's solution is to eliminate all such inequalities.

Egalitarianism is the antithesis of the valid tenet of political equality, under which we have equal rights. That is, we have the right to achieve whatever our ambition and talents allow, with no one permitted to forcibly stop us. Egalitarianism, however, is a denial of the individual's right to be left free. It is an abhorrent demand that some people be punished for achieving what others haven't. It is a brazen declaration that an equality of condition must be attained.

And how is it to be attained? By—as the Australians aptly phrase it—cutting down the tall poppies. No one is to be allowed to surpass his fellow-citizen. No one is to be allowed to rise. Which means that the most able must be brought down to the level of the least able. The equal spread of misery and privation is the only "equality" that egalitarians ultimately seek. This is why they extol socialist societies, where all suffer equal destitution, while vilifying capitalist societies, where all are free to advance according to their abilities and where the poorest enjoy greater luxuries than any citizen in a "worker's paradise."

Making others fall does not make you rise. While prohibiting a Thomas Edison or a Bill Gates from becoming fabulously wealthy does indeed reduce income inequality, it does not make the poor richer. Nonetheless, it is what egalitarians desire. They are motivated by what Ayn Rand called "hatred of the good": if they lack something of value, they want to make sure nobody else has it either.

Income inequality is an effect. The cause is the difference in people's economic production. Criticizing income inequality is like complaining that a computer carries a higher price than a paper clip. Price reflects an object's market value—and the money someone earns reflects the market value of his work. There is no fixed, pre-existing glob of income that somehow oozes disproportionately into the pockets of the rich. Wealth is created. The top fifth of the population have ten times more income than the bottom fifth because they have produced ten times more.

In a statist system, people advance through government favors and at the expense of the genuinely deserving. But in a free, capitalist system, income inequality represents something good. It means that exceptional individuals are free to do their productive best, and to reap their rewards. Whenever a Bill Gates arises to make his fortune, the income disparity between top and bottom increases—but so does everyone's standard of living. If so, why shouldn't we welcome an inequality—including a widening inequality—in incomes? And, instead of apologizing for this phenomenon, why aren't our leaders denouncing the egalitarian enviers who want to level us all?

Peter Schwartz is a Distinguished Fellow at the Ayn Rand Institute in Irvine, California. The Institute promotes Objectivism, the philosophy of Ayn Rand—author of Atlas Shrugged and The Fountainhead.

Labels: Business and Economics, Individual Rights and Law