Why I’m Not Concerned About Income Inequality

Income inequality is a very popular topic these days.  However, the whole issue is largely a red herring.  Aside from the fact that, in the US anyway, income inequality is measured before taxes and transfers (meaning before things like tax breaks or WIC/Food Stamps/etc are taken into account), one’s standard of living is measured not by his income, but rather his consumption.

An example:

Imagine, if you will, a man named Doof invents a machine, the Utopia-inator.  The Utopia-inator lives up to its name.  By inserting just a single dollar into the machine per day, a person can receive anything he wants.  All the dollars go to Doof.  Doof, in a moment of inspired kindness, gives one of these machines to every single person on the planet.  Doof now receives $7 billion in income per day.  In this scenario, income inequality is highly unequal.  Question: would this scenario be better or worse than current day?  The obvious answer is better: everyone now has the same standard of living despite the fact income inequality is so high!

Now, you may object that my scenario is outlandish.  It is done to an extreme to prove the point, but it is also true in this world as well.  Despite rising income inequality, people of all classes, and especially the poor, are living better and better in America.

In the end, the way to combat poverty is not to make everyone equal, but to make consumption cheaper.  Taking from one group to give to another will not accomplish that; all it will do is breed anger and distrust and greed.  But markets, free markets, will accomplish this.

4 thoughts on “Why I’m Not Concerned About Income Inequality

  1. On Sunday mornings NPR has a show on economics and personal finance which I sometimes listen to. Their favorite topic is income inequality; you’d think that there is no more pressing issue in the world. And those are economists commenting!

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  2. fta: “In the end, the way to combat poverty is not to make everyone equal, but to make consumption cheaper.”

    How does it come to pass that consumption can be made cheaper without reducing the profit margins of those producing the consumables? How then could it come to pass that producers of consumables could maintain the level of pay their workers receive out of those reduced profits? How then does the government maintain a decent tax income level to be able to assist the poor when workers pay has been cut because of reduced profits made by the producers? How then would it come to pass that poverty would decrease as less people have less money with which to consume? Seems to me that this is a steep slope with no upside.

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