The Benefits of Economic Inequality


What do you think when you see the rich man and his wealth?
Capitalism and communism stand at opposite poles. Their essential difference is this: The communist, seeing the rich man and his fine home, says: 'No man should have so much.' The capitalist, seeing the same thing, says: 'All men should have as much.'
PHELPS ADAMS

Economic inequality is necessary to prosperity and innovation. This is why coercively redistributing wealth from the richest to the poorest is counter-productive.

What Good Are Rich People?

Even the selfish extravagance of the wealthy paves the way for everybody to enjoy luxury. Rich people are the ultimate early adopters. They invest in new technologies before average people could think to afford them. In other words, by purchasing the most cutting edge products, technology and fashion, they fund the research and development for those things. They give entrepreneurs a chance to learn how to make things affordable to the masses.

Rich people FTW!
The most common conveniences today were first pioneered by the wealthy: the cellular phone, television, computers, airplane travel, microwaves, etc. These are things we cannot imagine living without today, but if somebody had not purchased them when they were prohibitively expensive, they would never have become affordable for average people. To put it another way, by practical trial and error, the most wealthy people weed out the products that wouldn't be useful.

If the rich did not invest in early technologies, the only party left to do so would be the government. This would mean that the government would choose which technologies win or lose. The examples of governments that did precisely this are plentiful. In every case, this type of decision making led to stagnation in innovation, higher costs and lower quality.

Zero Sum Economy?

One implicit criticism of the rich is that they obtained their wealth at the cost of other people losing theirs. Every dollar they have is a dollar that was taken from somebody else. This assumes the economy is zero sum, or close to it.

This is false. Economies grow because people create value through work and ingenuity. An auto manufacturer takes raw materials and assembles them into something that is worth more than the sum of its parts. It creates profit where there was none before.

When a selfish rich man buys the most extravagant yacht, he adds value back into the economy. The company that made the yacht makes a profit. The employees walk away with money. They spend it somewhere else and reward other people for creating value. Everything the rich man does with his money, no matter how selfish or extravagant makes others richer. The only thing a rich man can do with money that wouldn't help others is to hide it under his mattress.

The relative wealth of the rich man as compared to the poorest man doesn't change the fact that every investment of his is a boon for the economy as a whole and for every person affected by it.

Can We Eliminate Poverty?

Poverty can be eliminated. Extreme variations in wealth are not a cause of poverty.
Make everybody rich

Statistically speaking, there will always be somebody who is the "poorest". Fortunately, wealth and class in America are remarkably fluid. Individuals are constantly moving into higher income brackets—and from the highest into lower ones. This kind of broad fluidity is a social boon. It prevents real class distinctions from developing and engenders a feeling of connection among income levels. The rich often rise from the poor and as a result want to lift the poor. The poor aspire to be rich and realize it is attainable.

Indeed, the rich do the most to lift up the poor. They are quick to found nonprofit organizations and spearhead humanitarian efforts. They establish museums and undertake public works. In a literal way, income inequality actually helps to eliminate poverty by lifting the poor to higher standards of living.

Unless poverty is defined as a low income in relation to some other group's, it can be eliminated by a combination of private charitable efforts and the continued creation of value and wealth.

Inequality FTW!

The phrase "economic inequality" implies that all people ought to have similar incomes. The means for this usually includes redistributing the wealth of the richest to the poorest, bringing them to a closer parity with the middle class.

This is counterproductive. It impedes innovation, actually exacerbates poverty and slows the economy. Economic inequality is not, in the end, a great social injustice that needs to be righted. It is the natural result of competition, and it yields important benefits.

No comments:

Post a Comment