Income Inequality

President Obama gave a speech on Dec 4th and he spoke about income inequality. The Washington Times reports on the speech here. On Dec 15 Paul Krugman wrote about the subject in the NY Times.

Steel MillIncome inequality is a recurrent bugaboo of the Left. On the surface, the concern seems to have merit. But worry over income inequality has, at it’s root, Marxist presuppositions. If, as Marx believed, workers are exploited, getting an incomplete share of what they produce for a business, then comparing the income of workers and business owners makes sense.

However, if one understands more completely the workings of a free market economy, that not just labor but also capital provide value, then there is no reason to be offended by what capitalists or management earns anymore than there is reason to be offended by what a bricklayer earns compared to a teacher or engineer.

As a rebuttal to the notion that inequality isn’t some sinister byproduct of Capitalism, modern Progressives have come up with arguments claiming that societies with greater income inequality have lower economic growth and other societal ailments.

At the root of the debate is a false premise, the premise of income inequality itself. As Thomas Sowell explains, an abstract discussion of income categories leaves out a very important component, people. If, instead of comparing income categories you compare individual people you find out some interesting things. The biggest income inequality is between the old and the young. Not only do people move up the income scale throughout their lives, individuals move in and out of income categories constantly as their income varies. Better to hear his explanation first hand:

And here is Margaret Thatcher’s more dramatic exposure of Leftist fallacy:

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