With all the attention commanded by the presidential campaign, election, and aftermath, plus the ongoing covid-19 story, many other issues have faded into the background. Though escaping the headlines, some of these other issues will be with us for a long time, and contributions to the public discussion of such issues often have a long-term impact.
One such issue is a long-time favorite of progressives: income inequality. The most influential recent addition to the discussion is a study announced by the renowned RAND Corporation in September. RAND’s detailed, thorough, meticulous study about income inequality in the United States is titled Trends in Income from 1975 to 2018.
The author’s main thesis is that there has been a wider distribution of incomes in the last four decades than in the three previous decades—the postwar period (1945–75). This is the author’s way of saying that the richest Americans’ incomes have been growing faster than the average incomes of the nonrich.
I don’t dispute the author’s conclusions. But the proper response to that conclusion is: So what? The mathematics may be correct, but there is nothing about disparities in income that is inherently unjust. First of all, there is no known “right” distribution of income. Secondly, the key question to ask about any particular distribution of income is whether the factors that caused it are just or unjust.
To elaborate: to assume that the distribution of Americans’ incomes in the 1946–75 period is “right” or “normal” or “better” or “fairer” than what has occurred or will occur in other periods is completely arbitrary. In a market economy, there will be fluctuations—sometimes rather large fluctuations—of income distribution, each of them reflecting current economic and political conditions. To pick a certain timeframe and designate it as “the way things are supposed to be” is pure whimsy, not science.
The causes of differences of income can be nefarious or benign, unjust or just. They are unjust when political powers rig the system so that the political insiders benefit at the expense of everyone else. Think of eighteenth-century France and contemporary (socialist) Venezuela, for example.
Those who protest how unfair it is that some Americans have gotten so rich (most prominently politicians like Bernie Sanders and AOC) do not understand the concept of profits nor how profits are earned. They are under the spell of what the great economist Ludwig von Mises called “the Montaigne dogma”—the fallacious notion that “no profit whatever can possibly be made but at the expense of another” (Montaigne’s exact words). In an unfree society, such as France under Louis XVI, there is a zero-sum world in which the poor were poor because the rich were rich. But that is a gross misrepresentation of a market economy based on private property and voluntary choices.
The likes of Zuckerberg and Bezos et al. earn income and accumulate profits in exchange for having provided things of economic value to their fellow humans. They have no power to force anyone to buy their products. People willingly give their money to “rich corporations,” because they value what they are purchasing more than they value the money they are paying; were it not so, the transaction would not take place. A free society with voluntary economic exchange is a positive-sum world. In a market economy, both parties to transactions profit from exchange.
On the downside, many Americans’ incomes have fallen due to lifestyle decisions. One startling example: demographer Nicholas Eberstadt’s “10 million man army” of working-age American males who have voluntarily dropped out of the regular job market, choosing to sponge off family or friends. Their incomes have fallen to negligible levels, thereby adding to the widening gap in incomes. The rich didn’t make them choose this lifestyle. (For more on social and economic pathologies, see Charles Murray’s 2012 book Coming Apart: The State of White America, 1960–2010. Murray documents widespread cultural shifts—none being imposed on the poor by the rich—that are highly correlated to lagging prosperity.)
We can help those in need through both private efforts and eliminating public policies that retard or distort economic production (and sadly there are many of those), but let’s not persecute the innocent. As Thanksgiving approaches, we should be thankful to society’s economic benefactors rather than condemning them because of the wrongheaded ideology of egalitarianism, which is nothing but irrational disdain for the individual economic differences that are the mainspring of economic progress for all.
The Mises Institute exists to promote teaching and research in the Austrian school of economics, and individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. These great thinkers developed praxeology, a deductive science of human action based on premises known with certainty to be true, and this is what we teach and advocate. Our scholarly work is founded in Misesian praxeology, and in self-conscious opposition to the mathematical modeling and hypothesis-testing that has created so much confusion in neoclassical economics. Visit https://mises.org