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A Wider Perspective on Income Inequality

BalanceScaleUnevenIncome inequality is a topic of passionate discussion today in many of the circles I move in. The discussion typically starts with a foregone conclusion that income inequality is a huge problem in the US. Some solutions I hear include increasing the top income tax bracket to 90%, initiating an annual wealth tax, or increasing the estate tax to 100%.

While leveling the playing field will certainly solve income inequality, it won’t solve the real problem. When I say that, I often get stares of bewilderment and disdain. It isn’t unusual for people to slowly distance themselves as if I had shapeshifted into Donald Trump.

First, how bad is income inequality in the US? It’s certainly no worse today than it’s been in the last 80 years. The CIA World Factbook 2015 Gini Index, a rating where 0 is equal income and 100 is completely unequal income, finds the US rates a 45.0, exactly what it was in 1929. That puts us in 38th place, slightly above the global median, which is 39.4. The worst 30 countries have ratings of 46.8 to 63.2.

Regardless of the fact that it has not increased over the last 80 years, what is the real problem with income inequality? A common assumption is that it has created an America where most people don’t have enough to afford a minimal quality of life. But is that true?

In a column from October 2015, George Will cites a new book, On Equality, by Harry G. Frankfurt, a Princeton emeritus professor of philosophy. Frankfurt drives home a main contention that economic inequality is not inherently morally objectionable and that “doing worse than others does not entail doing badly.” His alternative to economic egalitarianism is the “doctrine of sufficiency,” which is that the moral imperative should be that everyone have enough.

Consider this. If you are a US citizen with an income of over $32,400, you are in the world’s top 1%. Globally, you are considered “rich.” Indeed, the poorest 1% of US citizens have more wealth than two-thirds of the world’s people. Clearly, income inequality in the US doesn’t inherently mean everyone in society doesn’t have enough. This would suggest that complaints about US income inequality may be in response to something other than having enough.

Perhaps the real problem is more of a “discontent of those who are comfortable but envious,” as George Will suggests. Consider this: to be in the top 1% in income in the US you need to earn over $380,000 a year. Someone earning $32,400 a year, even though they are in the global top 1%, may easily lose that perspective when viewing someone earning over $380,000. The comparison could foster discontent by stirring up feelings of envy, jealousy, unworthiness, shame, and guilt. Rather than taking responsibility for and exploring these difficult emotions, instead we often shove them deep within and demonize others.

Will suggests that the biggest underlying producer of income inequality is freedom. Freedom includes the power to choose careers, such as opting to be a teacher rather than an engineer with full knowledge that teachers generally earn substantially less than engineers. The economic and non-economic benefits of each profession are dictated by market forces, rather than those in government deciding the winners and losers.

Envy of the rich is almost timeless and universal. Properly reframed, it also can be motivating. Contrary to common perception, 85% of the top 1% did not inherit wealth but are first-generation millionaires or billionaires. Perhaps envy didn’t drive them to try to tear down what others had achieved. Instead, it motivated them to build their own success.

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3 Responses to A Wider Perspective on Income Inequality

  1. jim thomson February 1, 2016 at 10:12 am #

    Income inequality in the US is in direct correlation to skill and production inequality.

  2. Bobbie Munroe February 1, 2016 at 10:26 am #

    Oh Rick, I do love you but…. First of all let’s admit that we can find various statistics to support our points of view. But let me start with the fact that wages have remained basically flat for decades while the income for the top .1% (yes, not 1% but .1%….I am not talking about the person with a few million dollars) has soared; that the number of good paying middle class jobs has shrunk and will continue to do so (which is a natural thing but leaves many good folks holding the bag). I teach budgets to high school through college based on $10K/hour (about 20K per year) and about 33k (low starting salary for a college degree) and BOTH of them are VERY lean. Minimum wage is much less than that. I watch my low income tenants in Atlanta struggle on $8-10/hour and for them, a holiday or winter storm or sick day is just another unpaid day. As for $32,400 being the top 1% in the world….that is irrelevant given most of the costs here are much higher (my lowest rent is a bargain at $6K/year). It is worse than trying to live in San Francisco on an average US income.

    I am tired of hearing about “job creators.” If you left more money in the hands of those who would spend it you would have jobs created in a very market driven way. I am tired of hearing about “redistribution of wealth” as it is already redistributed when labor is not paid enough. But now I sound like a preacher. Let me just serve as visionary for a final comment: If you do not pay people enough to cover the basics (food, shelter, clothing, medical / dental and, yes, in these times, at least some connection to the information age) at some point they will step back and say, “Why should I play by the rules?” Can you say revolution?

    XOX

  3. Mike Miller February 1, 2016 at 7:58 pm #

    My father-in-law used to say that you could take all the money from the rich people & give it to the poor people and within a few years the rich people would have it back again. And he meant through hard work & being industrious.