Does Income Inequality Really Exist?

Something that I’ve always wondered about is whether or not income inequality was real. I mean, it sure makes sense that it could exist. But the problem I have with it is that not everybody is going to have the same situation to start out with. On top of that, not every single business is going to be as successful as the billion dollar corporations. There has to be something going on or else people wouldn’t make such a big deal out of it, right? That may not be the case.

Income Inequality: The Idea

The general idea of income inequality is that the poor, at no fault of their own, have less money than the rich do because that’s just the way it is. I disagree. It’s not because the poor just had bad luck. It all depends on the situation you’re born into and the decisions you make. Many tend to think that we have a lot of rich people, so it only makes sense that it would naturally occur.

“Income inequality” doesn’t just naturally happen. It happens when we have a diversified set of decisions that have been made by individuals. Of course, it all starts with a situation.

Everybody’s Situation is Different

You may not want to deal with this simple fact, but not everybody can be born into wealth. On the flip side, not everybody can be born into poverty. The only thing that everybody in different economic statuses have in common is that they can all make their own decisions when they’re 18. Some are born into poor homes and are homeless when they’re 18. Does this mean that they can’t get a job and save money? No.

In fact, there are some people who are born into wealth and choose to be homeless or live in poverty. There are some who are born into poverty, with the odds against them, and they became rich. I’m not going to say that Daymond John was born into poverty, but he certainly wasn’t born into wealth. He worked hard to get his brand, FUBU to where it’s at today.

There are some people who are raised without a work ethic. A work ethic isn’t always a genetic trait. Much of the time, you have to teach it to your children. There are plenty of rich kids who don’t have a work ethic. But it becomes a problem when enough poor kids grow up without one. Believe it or not, there are actually some people who don’t mind being homeless or being handed money by the government.

When we find people that are choosing not to work, we find that they usually need money from the government in order to survive. I’m not going to say that government welfare is bad. But I don’t believe that people should be able to choose that as a lifestyle. This is mainly because if enough people decide to have that lifestyle, the government decides that it needs to raise taxes to support those people.

Everybody Makes Decisions

Should I go to college or learn a trade? Should I open a business or help somebody else with their established business? Should I have kids or not? There’s a lot of decisions that we all have to make. First of all, I don’t believe that income inequality is a natural inequality as much as it’s voluntarily occurring. Before you get mad at me and throw the GINI index in my face (yes, as an economist, I know what it is), let me explain what I mean by this.

There are a lot of people who decide to go to college. There are a lot of people who decide not to go to college. Let’s say that I graduated from the University of Oregon with a BA in economics and accepted a job at an investment bank. I’d make $70,000 per year. Somebody else may have chosen to not go to college and just work. They may be paid $25,000 per year. This isn’t “equal,” but it was by choice.

Consider this next decision: Sam Walton created Wal-Mart and I decide to start a pizza business. He wants to expand all over and I want to stay local. Wal-Mart will go on to be a billion dollar company. My business will never gross more than $350,000 per year. Here, we see unequal business revenues, which would be unequal incomes. But this would’ve been my decision. I wouldn’t be mad. Neither should you. It’s your fault you didn’t make similar choices.

Political Manipulation: Welfare Supporters

You’ve already seen how income inequality has been used in elections to win the Democratic Party votes. Before you say that I’m crazy, think about this for a moment: In the last presidential election, Mitt Romney said that he wanted to cut back on welfare because he wanted to get everybody working again. He was then accused of not caring about the poor when, in fact, he actually cared enough to want to help them get jobs so they didn’t need welfare.

All Obama had to do is say that he was going to help those “in need.” I put quotation marks there because there are some people on welfare who don’t really need it. Before you go crazy on me and call me a conservative extremist, think about the fact that there are people on welfare who have been found using illegal drugs.

According to CrystalMethAddiction.org, “On average, the price of Crystal Meth for a 1/4 of gram is $20. 1/2 of gram of Crystal Meth is $40 and 1 gram is $80. A 16th (which is a gram and 3/4 of a gram) is around $120.00 and an 8 ball which is 3 1/2 grams is $200.00.” Bottom line: If people have money for any kind of illegal drugs, they have money for food and don’t need food stamps.

Political Manipulation: The Minimum Wage

Ah, another prime example of political manipulation courtesy of “income inequality.” Have you noticed that part of the minimum wage debate is to “help ‘close the gap’ on income inequality?” Groups like 15 Now are comparing CEOs and their pay to the minimum wage, saying that it’s unfair how people who run gigantic multinational corporations get paid a lot of money while those earning minimum wage can’t afford much. Let’s put you in the situation of a local business owner who is very successful:

You own a lucrative burger and fries restaurant and have expanded to all over your state. After all of your expenses are paid, your business has millions of dollars leftover and you want to expand outside of your state. How much are you going to pay yourself for all of your hard work, knowing that you put blood, sweat, and tears into your business? It wouldn’t be out of line for you to pay yourself a few million dollars. Your employees make the state minimum wage, which is higher than the federal minimum wage, and they want $15 per hour. You find that 15 Now is pressuring you to pay all of your employees a minimum of $15 per hour by advocating the state minimum wage to be there. Your accountant says that you won’t be able to meet any of your business goals if that happens. What do you do? Which will you support?

Any business owner, regardless of political affiliation, that truly believes in a $15 minimum wage will actually pay it right now. In Seattle, most businesses only pay the city minimum wage, even though many of them have advocated for a $15 minimum wage. This kind of political manipulation is inappropriate and it needs to stop.

Income Inequality: The Myth

There’s a myth about income inequality when it comes to opportunity. Many people say that there isn’t really an opportunity to make it work in today’s world. If the odds are against you, you can’t get out of the poverty stricken life. This is completely false and shouldn’t be trusted. Why? Because if you’ve been reading this, you should know that it all boils down to choice.

The problem with “fixing income inequality” is that it’s hard to do under an economic system that allows for its people to be free. America will have a problem with it as long as the people are allowed freedom. Capitalism is the only economic system that allows for total freedom with limited government intervention. While some may think this is evil or bad, there’s a reason why those same people would scream to have it back as soon as they lost it.

Socialism is controlled by the government. No, I don’t mean laws and regulations. We have that under capitalism. Socialism has everything controlled by the government. This includes prohibiting you from starting a business if they don’t want you to, even if it will hurt you or your family. Of course, systems like this have a collapse and, sometimes, a revolution within its government.

Consensus on Income Inequality: I find it to be a falsity created by those who want higher minimum wages.

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One comment

  1. Interesting perspective. I think that it is true that the income inequality discourse is abused by political parties to gain votes. However, it is very true that people born in poor communities have access to a lot less opportunities than let’s say middle class people.
    I will provide a clear example. I grew up in a very poor country, and even though I was top of my class, the level of education I received made it very difficult for me to be accepted in good colleges. It took me additional courses and 10 years to be prepared to attend a world renowned university. In the mean time, I had to work full time while studying. I caught up, and eventually made it to where I wanted to be, but I wasted 10 years filling the gap and I made t with lots of sacrifices.
    My kids are attending today a public elementary school where they teach statistics to kids from the second grade. I know for a fact that other schools in the nation are not at the same level of my school district, and yes, the area where I live is well to do.
    93% of kids graduation from our high school apply to college, acceptance to world renowned schools is around 82% and graduation rates for college are 99%.
    I think that inequality of opportunity does exist in many levels, lack of access to the correct resources. Furthermore, extreme poverty creates an array of social problems that include cycles of violence and mental health issues. So it is not only the lack of access that poor people have to fight over, but also the left over psychological scars.
    One can say, community college is fairly cheap. That is correct, but if your parents are very poor, and you work full time for $7 an hour and need to help out with house expenses, what time does this person have left to study after all the over time? It can certainly be achieved and it slows down the process.

    Additionally, when you look at the top 1% that made their wealth in the financial industry selling derivatives and producing absolutely no jobs or products. How can one argue that is not unfair inequality when there are people working 60 hours a week that can barely afford to buy the basics?

    I think that by keeping people poor, businesses are missing an important source of untapped wealth. But that is just my opinion…

    Liked by 2 people

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