Celebrating Income Inequality

Democrat and Republican candidates for President are debating one another on nearly every issue--but nearly all are united on one thing: America faces a crisis of "income inequality." The rich are getting richer, the refrain goes, while the poor and middle class are held back by stagnating wages, lousy schools, and growing healthcare costs. The solution, we are told, is more government intervention: spend more on education, provide "universal healthcare," and force employers to raise wages through minimum-wage increases and union protection legislation.

But all of this outcry is based on a false premise--that income inequality is bad. While some of the problems critics point to are legitimate concerns, income inequality is not. Income inequality is a natural and desirable part of a free, prosperous society.

Criticisms of income inequality are always couched in a certain type of language. For example, it is claimed that wealthier Americans "command" an "unfair share" of our "national wealth." Such language implies that American wealth is a communal pie that belongs equally to all of us.

But it is no such thing.

The vast wealth that exists in America has been created--through the productive activities and voluntary arrangements of individuals. And individuals do not necessarily create the same amount of wealth. Compare the value brought into existence by the entrepreneur whose productivity software is eagerly bought by millions--and the checkout clerk at a store that sells it. Such vast differences in productivity--which can be caused by vast differences in ability, work ethic, interests, skills, and choices--are the root of vast differences in income.

Because all wealth is created, it rightly belongs to those who earn it (or their chosen beneficiaries)--and no one can rightly claim to deserve wealth earned by others. If someone wants to make more money, he is free to enter a new field, gain new knowledge, start a business, or do anything else to enable himself to create more value.

It is often implied that the rich get richer at the expense of everyone else--that if some get big slices of pie, the rest get only crumbs. But the exact opposite is true. Since wealth (including pie) is created, there is no limit to how much can exist--and the wealth of others cannot inhibit us from creating and enjoying our own. Further, the wealth creation of the richest Americans makes us far more productive and well-off.

Consider how the wealthiest individuals in any free economy, businessmen, make their money. The job of a businessman is to orchestrate productive enterprises that efficiently coordinate people, resources, and tools to create valuable products. Businessmen profit when they bring out valuable products at desirable prices; thus, they are continually making more, better, and cheaper products for everyone to purchase. Businessmen profit when they make others more productive; thus, they are continually seeking to create new jobs that can add to their bottom line, and providing their workers with as many productivity-enhancing tools and technologies as they can. Businessmen's pursuit of profit has been the driving force behind the incalculable increase in our standard of living over the last 150 years--and economic history shows that the freer they are left to make money, the greater the increase in productivity and wages at all levels.

What then explains the poor educational opportunities, growing healthcare costs, and stagnating wages that are real problems for many Americans?

Government policies based on the same egalitarian mentality that denounces "income inequality." In the name of giving citizens "equal access" to education and medicine, the government has virtually taken over these fields, placing crippling controls on both producers and consumers. In the name of equalizing income, it enforces minimum-wage and anti-firing laws that make it difficult for eager newcomers to enter the job market. In the name of saving us from the alleged evils of rich, Big Business, it enforces endless regulations that apply to every business, decreasing the productivity of all and making it hard for new business ventures to succeed.

In America, equality should mean only one thing: freedom for all. If business and wages were deregulated, we would see a dramatic rise in economic opportunity. If education and medicine were left free, with America's businessmen, doctors, and educators liberated to offer education and medicine at all different price points, we would see quality and price improvements like those for computers or flat-panel television sets. But these benefits of freedom require that we recognize the moral right of each individual to enjoy whatever he produces--and recognize that none of us has a right to something for nothing.

What is Equality?

For two things to be equal means for them to be identical in some respect. Thus if two trees are both precisely 6 feet tall, they are equal in height. If two men both earn precisely $9,500 a year, they are equal in income. And if two people both have the same chance of winning a lottery, they have (in that respect) equality of opportunity.

However, while two things may be identical with respect to one or a limited number of attributes, no two physical objects can ever be identical with respect to all attributes. For example, all atoms differ in position, direction and history. And all human beings differ with respect to anatomy, biochemistry, temperament, knowledge, skills, goals, virtue and a thousand other characteristics.

Here we will primarily be concerned with three types of equality:

1. Political equality, a major goal of both the American and French revolutions, has traditionally meant equality of individual rights and equality of liberty. Stated simply, political equality means that the individual’s right to life, liberty and property is respected and that government abstains from conferring any special advantage or inflicting any special harm upon one individual (or group) in distinction to another. Clearly, political equality is at best only approximated and never exists completely.

2. Economic equality means in essence that people have the same income or total wealth.

3. Social equality generally means either (a) equality of social status, (b) equality of opportunity, or (c) equality of treatment. Social equality is also increasingly coming to mean (d) equality of achievement.

Equality and Liberty

A little reflection will quickly demonstrate that economic and social equality can only be achieved at the expense of political equality. Because people differ in ability, drive, intelligence, strength and many other attributes it follows that, with liberty, people also will differ in achievement, status, income and wealth. A talented singer will command a higher income than a ditch-digger. A frugal, hardworking man generally will accumulate more wealth than an indolent spendthrift. A brilliant scientist will command more respect than a skid row bum.

Nor are all of these differences of social and economic achievement the result of environment. Because people are individuals—genetically, biochemically, anatomically and neurologically—differences in strength, intelligence, aggressiveness and other traits will always exist. While environmental factors can and do exaggerate physical and mental differences between people, diversity and non-equality remain the natural biological order and hence are the natural social and economic order.

There is only one way to make all people even approximately economically or socially equal, and that is through the forcible redistribution of wealth and the legal prohibition of social distinction.

As Dr. Robert Nozick, of the Harvard Philosophy Department, has pointed out in Anarchy, State and Utopia, economic equality requires a continuous and unending series of government interventions into private transactions. Even if people’s incomes are made equal once, they will quickly become unequal if they have the liberty to spend their own money. For example, many more people will choose to pay $10 to hear Linda Ronstadt sing than will pay $10 to hear me sing, and Linda Ronstadt will very quickly become far wealthier than I am.

Economic equality can thus only be maintained by totalitarian control of people’s lives, and the substitution of the decisions of a handful of state authorities for the free choices of millions of men and women.

Political equality is fundamentally inimical to economic and social equality. Free men are not economically equal, and economically equal men are not free. Because the achievement of social and economic equality inherently requires the forcible interference with voluntary choice, I will subsequently refer to the doctrine that social or economic equality should be imposed upon a society as coercive egalitarianism.

Equality as an Ethical Ideal

In reality people are unequal: Americans are—on average—far wealthier than Russians, doctors tend to earn more than garbage collectors, and so on. But should people be unequal?

At its root, egalitarianism is an ethical doctrine. It is often asserted that “ethics is just a matter of opinion” and that “one moral system is just as good as any other.” But in fact any ethical code can be judged by at least three criteria: (1) is it logical—have the basic concepts of the doctrine been meaningfully defined and are the arguments for it valid; (2) is it realistic—is it a doctrine which human beings can live by, or does it require that people act in a way which is fundamentally contrary to their nature; and (3) is it desirable—are the consequences of adopting the doctrine what are claimed, or would they be something entirely different; and if people adopt this doctrine will it lead to the creation of a society in which they are happy and fulfilled, or will it lead to a society of hopelessness, repression and despair?

Let us now apply these criteria to the doctrine of coercive egalitarianism.

1. Is coercive egalitarianism logical? Egalitarianism states that all people should be equal, but few coercive egalitarians define “equality.”

As stated previously, complete equality between people is an impossibility, so it can be rejected at once. But we are hardly better off when we speak of social or economic equality. Does “economic equality” mean equal income at a given age, for a given job, for a certain amount of work, or for a particular occupation? Does “equal wealth” mean identical possessions, possessions of identical value, or something entirely different? Does “social equality” mean equal status, equal popularity, equal opportunity, equal treatment, or what? All of these concepts of economic and social equality are distinctly different, and until they are defined, the doctrine of egalitarianism is illogical.

2. Is coercive egalitarianism realistic? People are different and have different values. To some happiness requires many material possessions, to others material possessions are relatively unimportant. To some people intelligence is a great value, to others strength or beauty are far more important. Because people differ both in their own characteristics and in the way in which they value traits in others, people will naturally discriminate in favor of some persons and against others.

Since variety and distinction are natural parts of the human condition, by demanding that people abandon such distinctions, coercive egalitarianism is contrary to human nature.

3. Is coercive egalitarianism desirable? Coercive egalitarianism, the doctrine of complete social and economic equality of human beings, logically implies a world of identical, faceless, interchangeable people. Such a world sounds much more like a nightmare than a dream, and indeed it is.

What causes poverty in America?

If you’re like most people, you are concerned about poverty—but probably not your own. By historical standards, most Americans are quite wealthy. And that’s part of what bothers us. If we were all poor, we might think that’s just the way things are, but when millions of us are doing quite well while others languish in poverty, it seems that something is just not right.

Today, 39 million people in America live in households with incomes below the poverty threshold, and over 13 million of those who live in poverty are children.[1] Naturally, that makes us want to do something to help. The question is: How can we best help?

How Not to Help the Poor

Throughout most of American history, religious and other private organizations provided most of the help for the disadvantaged. Because these charities tended to be small and local, they could maintain accountability with the recipients of aid and could provide a personal response to their needs. Moreover, this outreach typically provided a foundation of values that could be uniquely effective in addressing poverty that is related to behavior and life choices.

By the early 20th century, however, the government was taking on more “social service” activities. Regrettably, this government “welfare” crowded out charities that dispensed aid within a moral and religious framework and became the more dominant supplier of social welfare assistance in America.

The welfare state as we know it began in the 1930s under President Franklin D. Roosevelt. Though welfare was initially intended as a means to end the Great Depression, its roots deepened and its duration lengthened.[2] From that beginning nearly 80 years ago, the welfare system has ballooned to over 77 different federal programs, most of which were initiated in the mid-1960s with President Lyndon Johnson’s War on Poverty, a part of his Great Society agenda.

The total cost of these welfare programs is staggering. In fiscal year 2010, the government is expected to spend almost $900 billion on welfare programs, exceeding the entire cost of the war in Iraq during George W. Bush’s presidency.[3] This immense expenditure is not the result of a temporary, short-term surge: It is the product of a steady four-decade growth in spending.

Since the beginning of the War on Poverty in 1965, the U.S. has spent $15.9 trillion on welfare. Perhaps this price tag wouldn’t be so daunting if the welfare system actually reduced poverty. Unfortunately, it hasn’t. To the contrary, under the system, the ranks of the poor have continued to swell and welfare dependence has spread dramatically.[4] While the caseload of the Aid to Families with Dependent Children (AFDC) program was just under a million in 1964, by 1995 it had risen to 4.8 million. Why?

The Welfare Trap

More than 77 government welfare programs—which are spread across several federal departments and provide cash, food, housing, medical care, and targeted social services to poor and low-income persons—are “means-tested.” That is, beneficiaries qualify if they are below a specified income level.

Regardless of their intention, means-tested programs by their very nature pose disincentives for households to increase their incomes and risk termination of their benefits. Thus, the welfare system effectively set up roadblocks to the two main avenues for economic progress: marriage and employment. A single mother would be ensured of her benefits package as long as she did not take a job or marry an employed husband. Given this scenario, it’s not surprising that dismal societal trends have followed.

Unwed childbearing is the major cause of child poverty in America. Since 1965, the rate of unwed births has soared from 7 percent to 39 percent (and among blacks, to 69 percent). Children born and raised outside marriage are nearly seven times more likely to live in poverty than children born to and raised by a married couple. Moreover, unwed childbearing is concentrated among low-income, less educated women in their early 20s—those who have the least ability to support a family by themselves.

Low levels of parental work is the second major cause of child poverty in the United States. In a typical year, only about one-fourth of all poor households with children have combined work hours of adults equaling 40 hours a week. The typical poor family with children is supported by only 800 hours of work during a year, an average of 16 hours of work per week. If work in each family were raised to 2,000 hours per year—the equivalent of one adult working 40 hours per week through the year—nearly 75 percent of poor children would be lifted out of poverty.[6]

How Reforming Welfare Reduced Dependence

The Welfare Reform Act of 1996 reduced some of these damaging incentives in one major program, Aid to Families with Dependent Children. Under AFDC, states were given more federal funds if their welfare caseloads increased, and funds were cut whenever the state caseload fell. In other words, states were basically encouraged to swell their welfare rolls.

Welfare reform replaced AFDC with a new program, Temporary Assistance to Needy Families (TANF), which provided incentives to move recipients toward self-sufficiency. Funding to each state remained constant regardless of the size of caseloads, and states were allowed to retain savings from caseload reductions.

In addition, states were required to have at least half of their welfare recipients engaged in work or activity that would prepare them for employment. Rather than anticipating depending on the government indefinitely, recipients were limited to five years on the welfare rolls. (Under the old AFDC program, recipients spent an average of 13 years on the rolls.) These reforms in funding structure and incentives made a substantial difference.

Despite dire predictions by opponents of reform that work requirements and benefit limitations would lead to a surge in poverty, just the opposite occurred. States had the flexibility to design programs that best fit the needs of their constituents. State welfare agencies were transformed overnight into job placement centers, while social workers helped recipients access child care, housing, transportation, or other support that was necessary to move them into jobs and toward self-sufficiency.

Within 10 years, welfare caseloads shrank by more than half: 2.7 million fewer families were dependent on welfare checks. As the welfare caseloads fell, the employment of single mothers surged upward, and 1.6 million fewer children were living in poverty.[7] In 2001, despite the recession, the poverty rate for black children was at the lowest point in America’s history.[8]

Other Venues to Reduce Poverty

The 1996 welfare reform provided a model of how structural reform in government programs can reverse practices that had once maintained and even exacerbated poverty. Yet an effective, comprehensive response to poverty in the United States must go beyond reforms in the government’s delivery system of benefits. It will require efforts by policymakers and citizens that focus on underlying behavior and life choices related to poverty, tapping the resources of social institutions and creating an economic environment that is conducive to growth, upward mobility, and prosperity.

Strengthening the Institutions of Civil Society

Churches and charities are often closer to the problem and have a firsthand understanding of the needs of the people they serve. They tend to treat recipients not merely as mouths to feed or “heads in beds” to tally, but rather to appreciate the people they serve as unique individuals with emotional, relational, and spiritual as well as material needs.

In contrast to bureaucratized government programs, community and faith-based organizations can provide a moral and spiritual framework that can serve as a foundation for the transitions in behavior and choices that many individuals must make to begin their journey to self-sufficiency. Often based in the neighborhoods they serve, such groups are frequently more accountable both to their donors and to those they serve than are large, anonymous government programs.

In some cases, men and women who provide private-sector outreach have personally and successfully confronted a problem that had led to impoverishment. This experience allows them to win the respect and response of the people they serve, giving them “