I was listening to the radio on the weekend and heard a leading Canadian socialist, Stephen Lewis, lament about the big income gap between the rich and the poor as one of the worst ills in society today. Reflecting on that and on the exodus of millionaires from France in the wake of President Hollande’s proposed 75% income tax for them and on President Obama’s planned tax increases for the wealthy in the United States, made me wonder why so many people take it for granted that income equality is good. It isn’t—in societies based on voluntary trade and when people’s productivity varies. Why?
Redistributing income from the more productive to the less productive is immoral: it undermines our ability to survive and flourish and is therefore anti-human life. It takes away the producer’s incentive and ability to innovate and create—activities that benefit not only the producer but all those with whom he trades, even indirectly, in the form of better, cheaper products, more job opportunities, and a higher standard of living. Observe that highly productive people tend to flee not only France but also other (mostly European) countries with punishing progressive income tax rates. Ingvar Kamprad, the founder of IKEA and one the wealthiest men in the world, is just one example: he left Sweden for Switzerland more than 30 years ago.
The producers in the income-equalizing Europe and Scandinavia who have accepted income equity as an ideal and stay put, produce less. Unless whole-heartedly embracing altruism, the morality of self-sacrifice, they have less incentive to produce because any extra income they would earn would be taken away and redistributed to uses not chosen by them. Forcible income equalization also undermines the producers’ ability to produce: the wealth that they have created and would have invested in further production is redistributed to say, government social programs, diminishing the producers’ productive capability. In other words, equalizing people’s income is in no-one’s self-interest. It harms the producers and does not benefit the recipients of the redistributed income beyond the short-term. All the socialist experiments throughout history have proven that “redistributing” unearned money to people does not make them more productive. Quite the contrary, it creates long-term misery—the state of the Canada’s native reserves is a graphic contemporary example.
Forcible income equalization by government is immoral also because it, like any initiation of force, undermines our main means of survival: ability to think and act on our thinking. Take an entrepreneur who comes up with an idea for a new business. He does market research to determine potential demand, scouts out suppliers and a location for manufacturing, assesses investors, determines his employment needs, projects income, and prepares a business plan. After all the thinking and planning—using reason—the government announces a higher tax on new businesses that would all but wipe out the entrepreneur’s profit, rendering all his rational conclusions and plans useless. Force, such as progressive income taxes, undermines thinking and acting, preventing or hindering production.
Finally, income equalization by government is immoral because it is unjust. Those who produce more, through the effort of their own thinking and action, earn the wealth they create and therefore deserve to keep it. They earn their wealth by voluntarily trading with others: when they produce goods and services that others want and sell them at prices others are willing to pay, they deserve the income they get. The more value they create, the higher their income should be. The solution to eradicating poverty is not the elimination of income inequality. Instead, we should embrace income inequality as beneficial to human survival and flourishing and encourage, not punish those with productive ability.
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