Is income inequality unjust?

Last week, America's Future Foundation hosted three mini-debates in River North. One was on the presidential race (does it really matter?) and another was on Ron Paul's foreign policy (is it dangerous?). Zack Fivenson, John Giokaris, Dave Ratowitz, and John Tillman of the Illinois Policy Institute participated in these debates, which you can view on AFF-Chicago's YouTube channel.

I participated in the final debate: "Is income inequality unjust?"

Although AFF is committed to the ideas of free markets, limited government, and individual liberty (the ideas I discuss on this blog), we are also an open forum for young professionals interested in all ideas and current events. We want to hear what others think, including the notion, for example, that growing income inequality is in itself worrisome to social cohesion and the economy.

Unfortunately, we weren't able to find anyone from that camp to participate in our debate, so I filled in.

Pitted against the skillful rhetoric of one Shalesh Kumbhat (a recruiter in the Loop), I argued an atypical libertarian argument: Income inequality is sometimes very unjust.

You can see video from this debate below. Unfortunately, our camera ran out of juice before the debate finished, but you'll get the gist. Also, although I am very white, I'm not luminescent as the video makes me (and everyone else) appear.

There is nothing wrong or unjust inherently about income inequality. The gap between the lowest, median, and highest income individuals is itself meaningless. It's just a number that says nothing about the ability people in each of these groups to buy things, whether bread, milk, cars, or yachts.

And just because the wealthiest are pulling away from the middle class in terms of income doesn't mean necessarily that the middle class is disappearing, as so many like to argue. To make that claim requires a lot more.

Spending power is the real question. It matters how much bread, milk, television, washing machine, iPhone, and airfare I can buy with my dollars, not how many fewer dollars I have than Bill Gates.

It's also important to think of the hours spent working to earn the amount these items cost. Here's a handy list of the difference in the number of hours Americans have had to work to buy items from Sears catalogues in 1975 and then in 2006. Using the average hourly nominal earnings of production workers for 1975 and 2006, economist Don Boudreaux found that it took 11.49 hours of work to buy the highest-priced work boots in the Sears catalogue in 1975, and 8.26 hours of work to buy the same in 2006.

But I digress. Income inequality is unjust when it is brought about by government interference in the marketplace. It's unjust, for example, when government prohibits the sale of incandescent light bulbs, thereby steering business toward General Electric for its expensive fluorescent bulbs. And it's unjust when the least skilled and poorest among us are priced out of the labor market by minimum wage laws. In both cases, the gap between rich and poor expands because government thought it knew best.

Inflation and the minimum wage are two of the most insidious factors contributing to the state of the poorest and least skilled among us. It's fine and dandy for the middle class when boots take fewer hours to buy today than 35 years ago, but if your skills aren't worth $7.25 per hour, you're not going to be hired, and you won't have any income at all.

If you're truly worried about income inequality, focus on changing the ways public policy exacerbates the problem through legislation that seems nice but creates all sorts of undesirable and unintended consequences.

Filed under: Justice

Comments

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  • There will always be income equality because people have unequal ambitions drives, and skillsets. There are certain behaviors, attitues, values that are held by the very succesful who don't wasn't born apart of the lucky spem club. Capitalism is wonderful. The people who are against it and want to do away with it are usually sore losers who are mad because they don't have what it takes to compete and they want to pull everyone down to their level. Failure loves company.

    The problem is everyone wants to be rich but not everyone is willing to do the required work, dilligence, discipline,etc. that is needed to get there. The keys to greater prosperitity has and always will be is entrepneurship.

  • Yes crony capitalism also facism is bad.

  • Those whose main selling point is "fairness" fail to consider that, in the US, incomes will rise and fall over time in a normal marketplace.

    One day, you're fairly poor and you put together this weird thing in your garage (Steve Jobs), and thirty years later you are doing okay.

    And one day you are flying high and rolling in the dough, and the next you're a greeter at Wal-Mart (if you are lucky).

    Snapshots on the way up and snapshots on the way down.

    Unfortunately, most of America now buys into having things owed to them, which means legalized stealing, through taxes, from one segment of society to transfer to another.

    This is why Obama will win and those who share his redistribution philosophy (Rahm, Dick Durbin, favorite Dem, most Republicans), will keep winning.

  • Income inequality is unjust and is as bad as it's been since the Gilded Age. http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-gap-between-the-top-1-and-everyone-else-hasnt-been-this-bad-since-the-roaring-twenties-1

  • In a perfect Libertarian world with no minimum wage and no government regulation, wages would be in perfect alignment with what the employer was willing to pay and the worker was willing to accept. Read The Jungle and let me know how that worked out for the American worker...

    The reason an American worker doesn't have to work as many hours to buy a pair of boots is because those boots are made in a country with no regulation and no minimum wage. It's also a country where workers live in dormitories and only 20% of the country has a flush toilet. Don't even get me started on air quality or environmental health factors...

    Income inequality is not bad, per se, if it is based on equal opportunity and exceptional performance. But that is clearly not the case and anyone who believes that a child born in the projects has an equal chance of becoming as wealthy as the son of a former auto industry exec and Michigan governor is being dishonest with himself and incredibly naive.

    It is the inequality that occurs through Corporatism - not Capitalism that is the real problem. Wealthy individuals fight to secure monopolies and grudgingly accept oligopolies through lobbying of government and proactively denying others the opportunity to compete with them. Yes, there are exceptions like Steve Jobs, but those are few and far between. He made his mark in an emerging market while the giants of his field were caught snoozing. This doesn't happen very often.

    Government regulation protects the rights of citizens to breathe clean air, drink clean water, and work in an environment that is not hazardous to an individual's health. Government also provides businesses with national defense, law enforcement and courts to protect its property rights, and infrastructure to conduct its business. Without a balance of regulation and "socialist" services, there is no liberty to pursue a profit because it becomes the wild west or Somalia.

    There needs to be a balance between government services and regulations. If it seems to be off, that's open to debate. Without a basic balance, there are no consumers who can afford to buy anything beyond, much less including, food, clothing, and shelter.

    We haven't seen any inflation in anything that's not related to oil (which is manipulated through speculation) in years. Monetary policy (another topic of debate) is keeping it in check. If inflation should escalate and/or wages plummet, an individual's purchasing power will drop to less than the level resulting from the mass layoffs in '08 and you will see businesses failing in record numbers and pleas for more government bailouts.

    It's a fragile ecosystem and laissez faire capitalism has never been proven to work in its purest form. Be careful what you wish for...

  • In reply to Brent Cohrs:

    Thank you for your reply, Brent. I appreciate your thoughts.

    The first idea I'd like to mention is the myth of the no-regulation libertarian. Libertarians are not anti-regulation. In fact, we are very pro-regulation to ensure people are protected from the fraud, abuse, and other bad things people do to people inevitably. What libertarians are against is regulation that allows the regulated to regulate their competitors out of business. This "regulatory capture" is pervasive: the more regulations on the books, the more opportunities one company has to take advantage of the others and their (at taxpayers' expense).

    And pleas for more bailouts should always fall on deaf ears. Unfortunately, so many companies have become so dependent on the benefits they get from the regulatory state that politicians often believe they have no choice but to grant these pleas. Again, the more interference there is in the market today, the more opportunities there are tomorrow for cronyism.

    On monetary policy keeping inflation or prices in check, all you need to do is look at what's happened to the Consumer Price Index since the Federal Reserve instituted its stable prices mandate in 1977. Since then, the CPI has increased 360 percent. Check the Fed's data on that: http://research.stlouisfed.org/fred2/series/CPIAUCSL.

    You're absolutely correct that the economy is fragile. It's very sensitive to policies that, for all the good intentions of regulations, make trade highly irregular.

    We can influence other countries to adopt our values by trading with them–ideas and goods. And also by choosing not to trade with them when they truly exploit people. We're seeing this happen right now with the outrage against the way in which Apple's vendors treat their workers. You and I have no sway over legislators in China, but we can influence them directly by not giving them our business. Apple is on the defensive now in the PR world. Time will tell if they make substantial changes in China in response to outrage in the USA.

    On this we can both agree: "It is the inequality that occurs through Corporatism - not Capitalism that is the real problem."

  • Have to go with Brent. Coming from a country (UK) where no one goes without health care (and really, it's not as bad as you hear) it is unthinkable to me that people in this country have to choose between medication and food. I'm all for people having wealth, but the unfairness comes from it being at the expense of a poorly compensated workforce; a workforce that would actually benefit from a minimum wage in place. If there is no minimum wage, some employers will go as low as they possibly can. No one's labor is worth less than $7 an hour. There will always be exploitation by some people if they think they can get away with it.
    So in short, there's nothing wrong with income inequality, just as long as the government is allowed in some instances, to take care of those at the lower end of the spectrum when it's needed.

  • In reply to Expat in Chicago:

    With all due respect, Expat, how can you be certain "no one's labor is worth less than $7 an hour?" That's an arbitrary idea.

    The minimum wage prices the least skilled people out of the job market. It also serves to reinforce rising prices on things such as medication and food. The unskilled person is both now unemployed entirely and unable to buy the things others who are employed are able to buy.

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    Richard Lorenc

    Libertarian (classical liberal), entrepreneur, big cat enthusiast, Apple-head, Trekkie, double bass player. Director of Programs and Alumni Relations for the Foundation for Economic Education (FEE), the first free market organization in the country, whose mission is to inspire, educate, and connect young people to the ideas that make free societies successful. Former chairman of the Chicago chapter of America's Future Foundation, a group developing intellectual leadership among young professionals.

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