Saturday, August 20, 2005

The "Income Gap"

I just had to weigh in briefly on the notion of “income disparity.” I can recall a comment that income disparity today is greater than at any time since the 19th century. I hope such an argument isn’t implying that we’d be better off going back to the glory days of the Great Depression in the1930’s, when the gap between the rich and the poor certainly was much smaller than it is today. The entire notion that a small income gap between the rich and poor is preferable to a large income gap is one that tends to grate not just my libertarian sensibilities, but my sense of rational and logical thought as well. Very briefly, here are my thoughts on the subject:

The effect of income disparities on the economy as a whole is an issue far too complex for the lonely libertarian to weigh in on, and economists themselves are divided as to what these effects might be. Despite this, I’m amazed how often I hear that increased income disparities are not only bad for America, but bad as a general proposition.

The problem is, as a simple question of morality, there is nothing wrong with income disparity per se. Take two hypothetical countries, with all monetary values being equal. Let’s say in Country A the average income of the top 10% of the population is $10 and the average income of the bottom 10% is $1. Now in Country B, the average income of the top 10% is $100, and the average income of the bottom 10% is $5. In Country B, the richest make 20 times as much the poorest make, whereas in Country A, the richest make only 10 times what the poorest make. Both in absolute terms and as a ratio, there is greater income disparity in Country B as opposed to Country A. Yet where would you rather live?

I don’t know about you, but I’m going to the richer country, not the country with less income disparity. Of course, it could be argued that you might choose differently if the numbers were different, but that destroys any moral argument that large income disparities are somehow wrong. Obviously the example is extremely exaggerated, but the point is that wealth is not finite. Or as any economist will tell you, economics is not a zero sum game.

And there’s the whole issue of how to achieve differing distributions of income in the first place. Either you want the government to dictate specific results, or you don’t. Either you believe in letting the free market work, or you don’t. And if you want the government to take action to ensure certain results, why not go all out and make things as equal as possible?


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