Income Level is Not a Social Issue

I have resisted writing about the perceived problem of inequality in income and wealth; Thomas Piketty’s book, Capital in the 21st Century, has received too much unjustified attention already. But I gave in because I think what I have to add to the debate helps in rejecting Piketty’s argument that the wealth and income gap is somehow alarming and should be reduced.

Why is the attention to Piketty’s book unjustified? Because the wealth and income gap between the rich and the rest of us, whether growing or not, does not matter. (And therefore, over 700 pages of analysis of this issue are a waste of paper and a waste of time to read and think about. I have not read and will not read Piketty’s book). As Harry Binswanger convincingly argues in a Real Clear Markets column, income level is not a social but an individual issue.

How much money someone makes is nobody else’s business, as long as they earn the money honestly, without initiating force or fraud, and are not forced to do it. The amount of money a person earns by working for someone else, by operating a business, or by investing is a matter of trade: in (relatively) free markets your income depends on how valuable what you offer (your labor, your products or services, or your capital) is to your trading partners. And how valuable what you offer is, depends on your productivity: creation of material values. The more productive you are, the more material values you create, and the higher your income and accumulated wealth.

Our lives literally depend on productivity: without our productive efforts and those of others, there would be no material values— such as houses, vehicles, fuel, food, medicine, insurance, art, entertainment—that a flourishing life requires. And productivity requires freedom: freedom to choose with whom to trade, what to produce, where, and when, and how to dispense the results of one’s production (to consume or to invest). While slaves can produce material values under the threat of force, they lack the incentive to innovate new and better products and better ways of producing. Throughout history, the freest societies have always been the most productive: contrast, say, America (especially before it became a modern entitlement state) and Russia under various forms of dictatorship.

Now, take Piketty’s (and President Obama’s and other leftists’) argument that income inequality is a problem and should be reduced or eliminated. The only way to reduce the differences in income and wealth is to take (through taxation) from those who are more productive and give to those who are less productive. This reduces the freedom, and motivation, of the producers. The consequence? Fewer material values are produced overall—given the lesser motivation, ability, and effort—and everyone’s ability to survive and thrive is diminished.

We should not envy those who are more productive than us and demand the government to reduce the income gap. We should encourage and cheer their productivity instead because their production, investment, and consumption (which means increased demand for products and services) create more material values and trading opportunities for us. Curtailing the producers’ freedom and forcefully reducing inequality in income and wealth harm everybody. So let’s reject Piketty’s and others’ arguments against income inequality and embrace and defend freedom to produce and trade instead.

  • http://ocsure.blogspot.com/ OC Sure

    Also, fractional reserve banking and all the other deceptive machinations thieves use to conjure currency, which then is counterfeit because it represents the absence of productive work, steals the purchasing power from everyone who uses that currency. Lesser income people are affected the most by this and over the course of the last few generations this theft, the depreciation of the currency, is probably the primary impetus for the widening of the income gap.
    This deception represents the fraud characteristic of your bolded sentence above but it can’t be pointed out enough: currency is not money. Depending on whether it represents productive work or the impersonation of productive work determines whether the currency is money or counterfeit. When the banks use the multiplier effect to turn 100 dollars into 1,000, that is not productive work. It is theft.
    So, actually there is another way to assist in narrowing the income gap and that would be to stop the counterfeiting. Stopping the theft would alleviate the currency from depreciating and add more purchasing power to the income of all.

  • tucjk

    “I have not read and will not read Piketty’s book”

    A significant part of Piketty’s book is arguing why he thinks income inequality affects the society as a whole. He forecasts slower economic growth, which is the opposite of your theory.

    Now, if you criticize how he arrives at that conclusion based on his data, that’s fine. I’d like to hear it.

    But don’t you think it’s unfair to totally dismiss a book based on a premise that the book explicitly addresses?

  • DRT

    If her purpose was specifically to critique Pinketty’s thesis than you would be correct. But her purpose is to present a counter-argument. She is explaining why income inequality doesn’t affect society as a whole.

  • tucjk

    You are correct. Her main argument is that income inequality doesn’t affect society as a whole.

    But in her last paragraph, she simply repeats the “rising tide lifts all boats” mantra, which is something that Piketty’s book explicitly argues against.

  • Threnody

    It has long been confounding to me why self described individualists will still spit collectivist justification for their views. I think it is because the ethic of altruism is so deeply embedded in most of our upbringings, whether secular altruism, or misconceived Christian charity.
    The correct ethics for man can NOT involve chucking any individual into the volcano – even the rich ones, not because it is bad ‘for the tribe,’ but because it is anti-human life – anti individual human life. A proper ethic for Man can not include right murder of A man. (A man’s life is his time thought and effort. Codifying the rightful taking of the products of a man’s time thought and effort is the same as codifying the rightful taking of his life. An entire system of ethics sitting on this base is just might makes right.)