President Obama has come out against income inequality. But in my opinion, not only is income inequality a good thing; we need more of it.
Let’s begin by examining how wealth is created.
According to liberals, it is through government spending. But when government takes money, gives it to a bunch of government employees who produce nothing, and then takes a fraction of that and gives it to other people, that’s not production of wealth; that’s redistribution of wealth. Redistribution creates nothing. If person T (Taxpayer) has $10, and person G (Government) takes the $10, keeps $3, and gives $7 to person IA (Illegal Alien, for example), there is still the same $10 in circulation, no more, no less.
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Liberals can dress it up in fancy names. They can call it spending on “infrastructure”, which in reality mostly goes to ongoing government operations. But it is not creation of wealth.
Now let’s look at how the free market creates wealth. A businessman has money and wants to create a bread factory. He spends a million dollars to build this bread factory, which stimulates the businesses that produce the equipment he needs. When he’s ready, the businessmen then hires 100 employees to bake the bread. These employees aren’t paid huge salaries–the unskilled laborers are paid perhaps $40,000 a year, and the top supervisors are only paid $50,000 or $60,000 a year.
The factory is a success; and within a year, the businessman is making $400,000 a year in profits. Every year, the businessman is making ten times the salaries of his employees. As profits goes up at the factory, he keeps $500,000 a year, but gives everyone raises so they are making at least $50,000 a year–and hires twenty additional employees. But still, the income inequality goes up–before, he was making $360,000 more than his lowest employee; and now, he is making $450,000 more than his lowest employee.
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The income inequality is increasing in this example; and yet, the employees are also getting better off. To start with, many of these employees didn’t have jobs before they were hired. Even though the businessman is getting a disproportionate percentage of the profits (which is legitimate, since he spent a million dollars to build the business) he lifted 100 people out of poverty and gave them the means to support themselves and their families. When profits went up, the businessman is making a greater percentage of the profits–but everyone else gets a raise too–and he has to hire more people to keep up with production.
So a necessary byproduct of wealth creation and income inequality is that wealth is spread out among more and more people in order to create more wealth. It doesn’t matter that wealth is getting more concentrated because in order to create the wealth, more and more people need to be given money to increase the company’s output and profits. In fact, without the incentive for greater profits (and greater income inequality) for the businessman, he has no incentive to expand the business and hire more workers.
That’s why income inequality is vital to spreading wealth to others. If you’re concerned for the well-being of the “middle class” (a marxist term), you’re not going to take the temperature of their economic health by looking at the gap in income between the employers and the employees. The more proper measure is what the income and economic well-being of the middle class is, and how it compares to years past. By all measures (income and material possessions), the middle class is much better off than it was 30 years ago.
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That’s why agitating against the concentration of wealth isn’t useful. If anything, in a free market system, it’s a sign of the opposite: that wealth is being created, and that more and more are benefiting from it.
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by the owners of this website.
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