Much has been said about the growing “problem” of America’s income inequality. It’s been written that the top one percent of households account for 43 percent of business income and 75 percent of capital gains. This is a much higher percentage than what was true a generation ago. President Obama devoted a large portion of his 2014 State of the Union address to the “problem of income inequality”.
Is income inequality therefore a problem?
Back in 1979 I earned $2.65/ hour tossing pizzas. I might have said that it was unfair that others made a lot more money than I, but I was only in high school at the time. I later worked my way through college and law school on part time jobs and student loans, climbing my way up from the income ladder’s lower steps.
I don’t believe that’s what troubles the pundits. They look at a stagnating middle class of working adults who have little or no hope of moving up as I did. So the answer, apparently, is to create tax laws that serve as a quasi-wealth redistribution system.
But is that the solution?
In order to debate whether higher taxes on unearned income and generated wealth are the answers, one must first presume that income inequality is a problem. And I disagree with that presumption. Because in order to believe that income inequality is a problem, one must first accept the premise that income and wealth are finite resources.
As an example, if Facebook founder Mark Zuckerberg is worth several billion dollars, then if there is a finite amount of wealth that must mean that others can only be worth pennies because Zuckerberg has taken too many slices out of a limited pie.And we know that isn’t true.
Sticking with the Zuckerberg example, together we witnessed that the creation of Facebook not only led to his billions, but has made many other individuals and businesses millions of dollars too. Web developers, advertisers, game creators and countless others have used the Facebook platform to generate income, create jobs and earn tremendous amounts of wealth.
The same can be said of author JK Rowling, the one-time single-mother welfare recipient who penned the Harry Potter book series. Think about all of the wealth for others that she has created. Movie directors, actors, special effects wizards, theme-park designers, costume-makers, book publishers and video game producers have all made personal fortunes from Rowling’s unique ability to articulate her vast imagination.
I therefore don’t subscribe to the theory that wealth is a zero-sum game. In fact, it appears quite the opposite doesn’t it? There are those that can produce tremendous wealth, but then the very ideas that generated that wealth piggy-back to related business opportunities. This isn’t “trickle down” so much as it is “opportunity explosion.”
So in the 21st century what would it take to transform a high school pizza pie maker into a wealthier contributor of society? Most would agree that education is important. How about the ability to communicate ideas to others and to work with technology – whether it is through a laptop computer or a superconductor? Networking with other successful people is probably important too. In order to meet those goals takes some risk taking, whether investing in a college education or building a business inside of a garage.
The opportunity for accomplishment appears limitless when you view the world this way, doesn’t it? I believe that the world is full of abundance. There’s really no scarcity. Those who view income and wealth creation as a finite, scarce resource limit themselves. They function to protect what little they have rather than taking personal risks to reach for opportunity that might be within their grasp.
So what can our government do to facilitate the ever expanding pie? I would suggest that government needs to be careful not to choke these newfound pathways to upward mobility by increasing taxes or regulations.
Perhaps the focus should be on raising the tax revenue and spending the resources not on equalizing the income of those who find themselves at the lower rung of society, but instead to build platforms that give those who are willing to put in the risk and effort the capabilities that they’ll need to thrive in a dynamic, fast-changing world economy.
Income inequality is something to be concerned about. We don’t want our society dividing into “haves” and “have-nots”. But income inequality is only a symptom of the real problem our society faces – which is a belief in scarcity.
Instead, we need to encourage one another to have the confidence to invest blood, sweat and tears into one’s own future as that is the best way to increase personal wealth. When those in the news business and government leaders frame the conversation in Robin Hood-like terms – taking from the rich to give to the poor – it only reinforces the wrong set of beliefs.
©2014 Craig R. Hersch