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About income inequality ...

September 11, 2013 - Lee Smith
I see there was a report out the other day about “income inequality” in the United States. These reports offer a broad look at where wealth resides and how the “classes” are faring in comparison to one another. Of course, these reports are misleading and often used as a cudgel by those who seek government action to remedy perceived societal ills.

If one person has the intelligence, ambition or great idea and then nets a good job or starts a company and is thus justly rewarded, that person’s success and wealth are not a wound for the person who has not achieved the same status. In fact, when individuals do great work or create great products, everyone in society benefits. Especially those who may be toiling at the low end of the economic ladder. They get better and cheaper products and services that improve their lives. “Income inequality” does not take into consideration real income, which is what a dollar can buy. Over time, all real wealth rises for everyone. Which is why you see people living in houses and driving cars rather than living in log cabins and riding horses.

Another misleading aspect of these reports is that they discount government transfer payments. So unemployment benefits and Social Security are not counted, for examples. So those who point at these reports as a way to advocate more income redistribution are committing a lie of omission.

While “income inequality” represents a real snapshot of society, it does not clarify the movement among citizens up through and down the various “classes.” A young person may be struggling at a low-wage job, trying to get a start in life and pick up skills. Three years later, he could be a manager. Five years later, he may start his own business. It is these individual actions that, in fact, create “income inequality,” as people make commitments and choices that will affect their income. Our society does impose taxes progressively on higher earners, so while they make more money, they also bear the lion’s share of the burden when it comes to government services. That’s worth remembering.


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