In his inauguration speech two weeks ago, President Obama mentioned that “our country cannot succeed when a shrinking few do very well and a growing many barely make it,” echoing the view of many liberals that income inequality is problematic and unfair in our society.
In the midst of the clamor for wealth redistribution and yet more progressive taxation, almost no one has stood up to defend the wealthy and the enormous productivity it often takes to achieve their status.
Actually, income inequality is among the noblest aspects of a free society: It reflects the fact that productive geniuses, who enhance our standard of living, are not robbed of their effort and are allowed to rise to their highest potential. In short, income inequality is chiefly the result of justice.
I do not care to speculate on the motives of those who would penalize the successful in the name of “fairness.” Let me just say this: No one is harmed by the mere fact of her neighbor having more income or wealth.
Income inequality does not create social instability — except perhaps in a statist or feudal regime where wealth disparities might arise due to corruption. In the laissez-faire society I advocate, where the government does nothing but protect individual rights to life, liberty and property, it is impossible to legally acquire wealth via the use of force.
Others claim that income inequality undermines the “American Dream.” A recent study by the Congressional Research Service is often cited as having shown that income inequality undermines social mobility, since it makes it unlikely that people are able to improve their position in the distribution of income. For instance, the 5 percent lowest income group is likely to stay in the 5 percent lowest income group.
This argument is misleading for two reasons. Firstly, it relies upon the erroneous view of wealth as being a fixed “pie” that is distributed among the population. Secondly, the focus on social mobility in the distribution of income, i.e. relative social mobility, is a red herring. What matters is absolute social mobility, which refers to the ability to improve one’s standard of living.
The view of wealth as a fixed sum that is divided among citizens is so short-sighted that it is difficult to believe it persists in 21st century society. Such a view drops the context of wealth creation and looks solely at the product — the wealth that currently exists.
But wealth arises out of the free, independent effort and thought of men and women pursuing their values — such as by scientists doing research to discover better medicines, software engineers developing more efficient programs, and farmers figuring out how to provide ever greater quantities of higher-quality food. As Ayn Rand once said, “wealth is the product of man’s capacity to think.” (For the New Intellectual)
It is clear, then, that wealth is not a zero-sum game. Everyone can benefit from the wealth creation of others, as it raises the standard of living in society. So the greater wealth production of others, and resulting income inequality, does not imply that the rich are taking away opportunities for the poor to create or receive wealth. In fact, the opposite is often true, such as when entrepreneurship creates employment opportunities.
Similarly, the focus on relative vs. absolute social mobility amounts to an attempt to transform productiveness and value-creation into a twisted competition; in other words, it does not matter whether you are better off than you were before (or better off than your parents) — it matters only if you succeeded in being wealthier than others.
This was never the American Dream. People fled the poverty, oppression and stagnation of the Old World because of the political freedom that the United States offered: the freedom from coercion by the government. This meant, with a few unfortunate exceptions, that no coercive mechanisms existed that could prevent a person from reaping the full rewards of her skill and effort — not for the sake of the monarch, or the Church or the “common good.” Because of this, wealth-creation was able to flourish.
The American Dream does not mean a guarantee of economic welfare (which could only be provided at the expense of others), and it does not mean attempting to be richer than others for its own sake. It means that people are politically free to search for opportunities to improve their lives, and create them.
This is the noble ideal that President Obama assaulted in his speech. This is what we must defend to establish a truly free society.
TRISTAN DE LIEGE can be reached at email@example.com.