Should we worry about Income Inequality?

What bothers me about this debate about “income inequality” is the suggestion that somehow “income inequality” is a bad thing on its own. This is simply not true. There is nothing inherently wrong with income inequality. The problem is “what” is causing it?

If income inequality is being caused by a fair and open free market where some people have skills, assets, or traits that are in higher demand than other people, then there is no problem. Doctors, engineers, basketball players, good looking models, etc. for one reason or another have something that other people want in greater proportion than say those who are less educated, less hardworking, less attractive, less skillful, less lucky, etc.

However, if the income inequality is being caused by oligarchic corruption by the government and big business elites working in tandem to cheat everyone else then that is another issue. This sort of behavior does not serve to better sort out supply and demand, but inhibits the fair treatment of people, and often results in outcomes that are little short of theft by the those-who-have from the those-who-have-not.

Therefore “income inequality” should only be seen as a warning flag that something may require our attention, specifically if it is related to government enabled fraud and corruption. In and of itself “income inequality” is in no way good or bad.

We should be asking some question:

  1. What is causing the income inequality? Is it the inevitable result of an open and fair market doing what it is supposed to do; picking winners according to the demands and wishes of the buyers? Or is it being caused by corrupt government activities supporting dishonest cronies at the cost of everyone else?
  2. Are the rich really getting richer and the poor really getting poorer? I know it sounds good in a political speech, but it probably isn’t true. Today the poor in the USA have a standard of living far above what the average middle class would have expected just 50 years ago, and only the extreme wealthy could have expected over a 100 years ago. Just because the rich are getting richer does not mean the poor are getting poorer, even if there is a relative disparity in economic wealth.
  3. Is there a lack of social mobility? And if so what is causing it? Could “income inequality” cause this? Or could it be a degradation of the cultural fabric of society that encourages people of all economic levels to make very poor decisions and then suffer the consequences; the difference being that the rich can better recover from bad choices whereas the poor have less wriggle room?

Alexander Hay is a US lawyer now living in Tbilisi, Republic of Georgia. Some have accused him of being a curmudgeon, but what do they know???? Noisy kids!