Inequality makes the world go roundIncome inequality is just another term for economic diversity. We need more of it, not less
by T Nelson
et's do a simple thought experiment. Suppose everyone had exactly the same amount of money, the same number of TVs, cars, bananas, everything. Everyone was perfectly equal. What would happen?
There would be no reason for anyone to buy or sell anything, because everyone has exactly the same stuff, so there would be no economic activity of any kind. This is what those who try to eliminate economic inequality are unwittingly creating: economic stasis. Utter, complete stagnation.
Why, then, does the word ‘equality’ sound so appealing? Because of a thing called equivocation. We are taught in school to believe that everyone is equal. Our founding fathers spoke admiringly about equality. But what they meant was equal treatment regardless of your social status, religion, ethnicity, and so forth. They did not mean that people should be made equal by taking resources from one person and giving them to another. A world where no one is able to make their life better, or to improve the way they live, without permission from the government, would be a hell on earth for anybody who had any ambition, talent, or brains. And so, the only way to keep it that way would be by force.
“Inequality” is really just a derogatory term for “economic freedom.” If it's eliminated, you do away with the engine of economic growth. Eliminating economic freedom has been tried already, and it doesn't work. First, a definition. In this article, I am mainly talking about income inequality or economic inequality. This is not the same as poverty. It is not the same as discrimination. If you want to fight those, I'm on board.
To some people, inequality is a scary-sounding word. To them it sounds like something that should be fought. But inequality is just another word for economic diversity. It is not evil—it's a force for progress, and it's critical to our economy.
Economic diversity allows us to be creative. It is the force that propels the economy forward. Like inequality, it is a thermodynamic principle, like energy in physics. In the human body, all the thousands of different chemical reactions that keep you alive continue to function solely because of inequality. There is more energy in one place than another. The driving force for the chemicals to equalize their energy is the force that keeps your cells alive. Without it, no metabolism could occur, and you would be dead. Everyone knows that if every part of your car had an equal temperature, it would not go.
The force that causes this is called energy. Without it, the world slowly grinds to a halt. It's just as true in economics as it is in physics. Policies that reduce economic freedom stifle the economy's energy (called ‘incentive’ by economists) and crush economic growth.
It is true that many executives are paid too much. If they were paid what they're worth, many of them would get a negative salary. But fixing that is the company's problem. If they pay their executives too much, they'll go out of business. It's not the job of government to protect them from their own stupidity.
The real problem with income inequality is not that the rich are getting richer, which they may be, but that it masks what's really going on: a steady decline in wealth among the poor and the middle class. If the government feels a need to do something, it should take a hard look at how its policies have contributed to this problem. Thanks to misguided policies of big government, employment in small businesses, regarded as a good indicator of growth and upward mobility, has declined steadily in the past several years. Taking money from the rich may satisfy your lobster-like need to claw them back down into the pot, but it will only worsen the real problem, which is that a big, stupid, inefficient government is making political deals, bribing voters, and meddling in the economy.
The reason we're hearing so much about inequality all of a sudden has little to do with fixing this. It's really an excuse for more government expansion and more interference in the market. What should we expect when the government tackles the symptom rather than the problem? Expansion of government, which always reduces economic freedom. Let's look at an example.
Suppose I ran a small business that sold apples, and one year I had a lot of them. Then I might hire you to help me sell apples, or I might give you apples in return for some other service. But if the government came in, took all my apples, and distributed them equally to everybody, what would happen? Everybody would have apples for a while, but I would probably think there was no real reason to plant apple trees, pick the apples, and advertise them. Eventually, the only way to get apples would be for the government to force me to grow them.
There would also be no reason for you to get a job, because you would know the government would give you all the apples you needed, regardless of whether you worked hard or not. So if the government wanted something done, they would have to force you to work.
To make sure things stayed equal, they would also have to tell you where to work, where to live, and what possessions you were allowed to have. If you complained, they would have to isolate you from society—move you to some cold place far away and force you to work. Let's call it, for want of a better word, “Siberia.” Eventually, to keep the system afloat, more and more of your freedoms would have to be taken away. But you wouldn't complain, because your housing is free, you get free medical care, a guaranteed job where you don't have to work very hard, and you don't want to “disappear” like your neighbors did after they complained.
Without economic diversity, there is no one to pull the rest of us up, except for the government. But if the government does it, it creates inequality, because some people get more free money from the government than others, which creates resentment. So we would all remain poor—except, of course, for the tax collectors.
After about 70 years of this, some other country on the other side of the world that realizes that 'inequality' is just a derogatory term for 'economic freedom' might decide to build an enormously expensive missile defense system, and they would all drive around in Ford Mustangs and wear cool blue jeans and listen to cool music, and they could say whatever they wanted without being afraid. Your kids might wish they could be like those cool people. Eventually, the whole system would collapse, and we would all become free to become unequal once again.
And so, rather than cowering in our run-down hovels, afraid of being poor, and worrying about what the government will do to us next, we would all become Americans once again: incentivized, courageous and energetic, free to take risks and free to get rich. Instead of envying our neighbors, we would have pride and self-respect once again.
Sounds silly? It is silly, but it's what you get when you try to eliminate economic freedom. And, as we all know, once upon a time somebody actually thought this would be a great basis for running a country, and they tried it. We should learn from their mistake.