For the Umpteenth Time: Income Equality

Posted on April 20, 2014 by


On Good Friday I was watching a “debate” between the conservative Roman Catholic Raymond Arroyo and the Christian Left activist Jim Wallis on the subject of income inequality and the pronouncements of Pope Francis on economics and justice.  The Fox News host Bill O’Reilly began with quotes from one very far left writer, Bill Scheer, who is arguing for radical government action to dismantle a capitalist economic system and redistribute income through coercive means.  President Obama has recently increased his rhetoric about inequality.  Liberals are following suit.  The upshot of all this is that it appears the Left of both the Christian and non-Christian variety are gearing up for a renewed and more aggressive social justice effort along with an anti-capitalist attack.  Obviously this is timed to parallel the upcoming mid-term elections.  So I would ask the patient reader to bear with me a bit as once again we examine this issue of economic justice in relation to capitalism.

We begin with the most important question:  Has capitalism been a major—if not the major-cause of poverty?  The left’s argument is that capitalism energizes greed which then is set loose in the context of big (and small) business to exploit all sorts of people to keep them poor.  This argument resembles the standard Marxist orthodoxy in many ways.  In fact it implies that capitalism must be replaced by a better system, imposed by government.  That system is some variation of socialism. 

The first problem with this argument is the implied but pretty evident premise that economic systems are to be evaluated by the standards of some perfectionist criteria whose aim is ideal outcomes.  These outcomes are to be sought regardless of the actual consequences, since the ideology and its pursuit are the ends in themselves.  Therefore actual outcomes become irrelevant.  After all, one can claim that the ideal simply has not been achieved yet must continue to be sought until or unless utopia is attained.

So even if I can show that the argument for income redistribution is a bad one, many Left-leaning economic thinkers and non-thinkers will not be persuaded.  But I will at least try. 

The facts, agreed to by nearly all economists, are that the market institutional system, wherever it has prevailed, has created massive aggregate wealth.  Moreover, this wealth has ended up benefitting not just the capitalist “class” or entrepreneurs and others but also all socio-economic ranks down to the poor themselves.  The dire prediction that as capitalism has grown, wealth has been more and more unequally distributed and that the distribution has actually made those at the “bottom” worse off.  Even though there are some statistics that indicate that income gaps have increased, it is incontrovertible that even those least well off have been made better off.  The stronger the capitalist system, the better off those at the bottom are. 

Now suppose we say that even those at the bottom are better off but still terribly situated and that government must raise them up through coercive redistribution.  Even here, would one actually propose to eliminate the entire system to redistribute income?  What would happen if we did?  Common sense tells us (and it is verified) that if those whose efforts to gain wealth are punished, their efforts will not only decline but will be impossible to some extent at least.  When that happens the businesses they established, the wages they paid will dry up.  When that happens, jobs disappear, unemployment mushrooms, all incomes drop, quality and choice of goods and services declines, even prices for previously cheaper goods increase–and everyone is worse off.  Is that utopia?  Can that help the poor? 

On another related point, income inequality in itself is not only not immoral but is inevitable.  Income inequality in itself tells us absolutely nothing about how well off real people are, how their lives are going materially.  In the United States it is well-known that most of the poorest in America live better lives than most of the people of the rest of the world, even many who are at the top of the social ladder in their respective nations. And, not coincidentally, the United States is currently still one of the most capitalistic economies in the world.  In addition, because individuals differ in talents, motivation, etc., not all have an equal opportunity to achieve the same level of economic success.  This does not make all of them inferior, though none should be encouraged to be lazy.  And there is dignity and earned success in any legitimate work.  But outcomes cannot possibly ever be equal.  We live in a fantasy world if we think can equalize the economic outcomes for every individual.  So the question becomes, what is the best arrangement for moving in the direction of increased well-being for all, whether they avail themselves of that possibility or not.  Therefore it cannot be immoral to fail ever to achieve what is impossible.  We are to pursue what is possible in the best way possible.  That way is markets.

So President Obama, Jim Wallis, and Bill Scheer and many others on the Left, I suggest you come down from the clouds or stop your political posturing and examine the actual results of markets, in terms both of their ability to create wealth and to make all levels of people better off.  Economic justice for the Left means exactly redistribution of income, but it is an indefensible argument.  Economic justice in a defensible sense is to create conditions under which it is possible for anyone to become better off and actually well off, given their particular motivations and talents.  But it is not to guarantee what would only “kill the goose that laid the golden egg.”  That would be economic disaster for all, most especially for those at the bottom of the economic ladder.

Perfectionism is not an option.  Economic subsistence is an unacceptable option.  Markets remain the best choice for any nation.  So stop the rhetoric about income inequality and think clearly—and ethically.