Income inequality: what is ‘fair’?

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Although I disagree with much that was written, I enjoyed reading Professor Williams’ op-ed piece (“Is inequality fair?” May 8, 2019). Policy considerations are critical to decision-making and Professor Williams was very clear with regard to his favored policy position.

He begins his thesis by stating that if the means for earning a living was represented by “piles of money on the ground” and the rich took an unfair share, then it would be appropriate to push for redistribution.

I think a more apt analogy would be the one most of us heard our parents say on many occasions – money does not grow on trees. If Professor Williams was to use this analogy, it would be closer to reality, if the trees (the very means for earning a living), were a metaphor for capital, technology, finance, communications, and land and those “trees” were controlled by a very small class of elites.

Professor Williams’ underlying thesis in his thought piece on inequality could be interpreted, as follows: The wealth that a person is able to accumulate is an outcome of, and directly proportional to, one’s “service to society.”

Theoretically his assertion could be true if it applied to decentralized commercial, industrial, retail, and financial sectors with vibrant local economies that were locally controlled, which is one of the defining characteristics of a strong bourgeois economy.

Going back to its 18th century roots, such an economy is the foundation of a liberal democracy, which purportedly is the system we operate under. His assertion could even be true in an economy that is open and counter-balanced with an active electorate and strong regulatory provisions.

Milton Friedman stated in his book, “Capitalism and Freedom,” that “the kind of economic organization that provides economic freedom directly, namely competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables one to offset the other.”

The problem is that this statement might work in the application of a sterile economic model, but does not apply in real life. Business entities under the guise of free markets run this country, while most of the competition that occurs within our economy is the competition for dwindling opportunities to obtain employment at a living wage with benefits that can support a family.

At the risk of stating the obvious, there is no political freedom without economic freedom. As our economy continues to consolidate and choices available for a means to make a living constrict, so too does political freedom. And it is bound to get worse.

We have gone through a long, sustained period of historically low interest rates. Having made and kept money cheap for so long, this, combined with technological advances, has provided substantial opportunity to invest in labor-saving technology.

And if the projections regarding artificial intelligence are any guide, we will be turning an even more substantial portion of our labor force not, as suggested by Marx, into a “surplus labor” force but as characterized by Dr. Yuval Noah Harari, into a “useless class” of economically unneeded people.

When I was growing up (in the 1950s and 1960s), we were taught that technology was going to improve all of our lives and that there would come a time when nobody would have to work even 40 hours a week to make a living. With reduced work hours, we would have more time to devote to family, civic and community activities.

Instead, we have developed an economic system where many households require multiple jobs to make ends meet, while many others cannot find adequate employment. (I believe the official rate of labor force participation in two or more jobs is a low of 5 percent, but there is much, beyond just common experience and common sense, to suggest that the number is understated.)

Contrary to what my teachers projected, the Labor Participation Rate has increased since the fifties, and since the mid-sixties average hourly wages, adjusted for inflation, has increased by about 10 percent — that is an annual growth rate of about 0.2 percent each year. During that same period, productivity growth has increased by about 100 percent.

This is the basis of our inequality – the labor force has been neutered economically and, as a consequence, politically, and has lost its share of the last half century’s productivity gains in direct proportion to its loss of economic and political power.

Aside from the morality, or lack thereof, of inequality, studies have shown the negative impacts of inequality on mental health, drug use, drop out rates, incarceration, obesity, homicide, life expectancy, and infant mortality. Furthermore, according to the OECD, inequality is bad for economic growth.

To address Professor Williams’ question head on – “Is income inequality fair?” – it should be beyond debate that a person should be fairly compensated for his or her labor. But that begs the question of what is fair.

It should be considered indisputably unfair that labor has lost so much of its share of national output over the past 50 years. It is unfair that citizens lack real voice in our political system, while too many government officials, through campaign contributions, regulatory capture, speaking engagements, post-public sector board, employment, lobbying, consulting opportunities, and other perks have become handmaidens of big business.

And while it is true that there are those who would prefer to live off the labors of others, we must be careful not to overstate the legitimacy of an economic rule of equivalence. There are many things that society needs that no one of us can accomplish or should be able to accomplish on our own.

As such, there is a need for a common treasury into which each of us contributes in order to provide for common needs, such as security, education, infrastructure and more.

There is also the need to recognize and accommodate the disparate capacities – physical, mental, situational – of all people in a given society. Addressing all of these issues can only be accomplished within our current political economy through progressive taxation, which also would preclude such vast disparities in income and wealth inequality.

Harold DeRienzo
Fayetteville, Ga.

1 COMMENT

  1. The author casually breezes past a few important fundamental issues on their way to making the case for a Marxian Political Economy. These bear addressing. Let’s spin up the rotors.

    For starters, it’s not immediately obvious, nor does the author attempt in any way to prove his assertion, that “business entities under the guise of free markets run this country.” The author expects you the reader to just accept it as an axiomatic precept to everything else they write. But it is so entirely easy to poke holes in this assertion that it’s actually hard to know where to start. I would point out that “this country” with its byzantine arrangement of regulatory agencies at local, state, and federal levels is not a “free market’. Rather, the US ranks 12th on the index of economic freedom*. Countries considered freer than us include Taiwan, United Arab Emirates, New Zealand, Singapore, and Hong Kong. Numerically, we have a score of 76.8. That’s a solid C on economic freedom. Few of us could imagine that we would enjoy the degree of political freedom and autonomy in the UAE or Hong Kong that we have here. On that note, I’ve just eviscerated the other axiomatic precept the author tried to pawn off on us: that “there is no political freedom without economic freedom.” I can stand on Pennsylvania Avenue with a bullhorn and call Trump an Orange Cheeto all day long. But merely hint that you’re unhappy with the dynastic patriarchs ruling the UAE, and you might find your head separated from your torso.

    The author then attempts to (poorly) make the case that we’re all somehow being exploited. First, he points out that the Labor Participation Rate has ‘increased since the 50’s’, and that ‘[real wages] have increased by about 10 percent’ while claiming that “productivity growth has increased [sic] by about 100%” From this, we are to told accept that the labor force has been ‘neutered economically’. However, when we examine the numbers, the opposite is true. Labor Force Participation in the 1950’s hovered just around 58%, and as of 2019, it hovers at around 63%. This is a 5% change overall. What this means is that 5% more people are participating in the economy today than in the 1950’s. Whereas labor force participation is supply, we should expect that wages fall proportionally to the increase of supply (basic economics – supply and demand). But as the author here points out, real wages actually increased by 10%. That hardly sounds like a ‘neutering’. What that actually means is the actual take-home pay of workers has beaten inflation such that a worker today is earning a 10% higher income than workers 70 years ago doing the same work. As for the 100% increase in productivity? That’s too low. Labor productivity has increased by nearly 427% since 1949 despite a slight decrease in hours worked. Quite contrary to the exploitation and class struggle model of the Marxist dialectic, our capitalist system of “mostly free” markets has allowed workers to earn more by accomplishing more while working less. Imagine if we had truly free markets unencumbered by bureaucrats!

    Let’s skip the rest of the glaringly obvious failures in thought that the author tries to heap upon the reader, and just get to their point, which is that capitalism is exploitative, and this results in inequality, so we need socialism to rescue us all. To understand how we might have arrived at this conclusion, you have to reverse engineer the turbid thinking of the Post Modernist Neo-Marxist. In short, the Marxist believes that all social interaction is a struggle between classes of individuals in which one class seeks to dominate and exploit another. There is no other explanation for them. Why this is a problem in “the real world” is this: there is no Marxist explanation for why people give to charity. No Marxist would ever be able to explain why someone would say “keep the change”. The notion of voluntary interaction between individuals as the basis for economic exchange based on value cannot exist because everyone benefits and no one is exploited. The only way they can explain the emergent phenomena of inequality is by assuming some conscious effort was exerted to force that outcome.

    How then are we to explain the existence of inequality? Well, first we have to define it. When the Marxist (or the Progressive, or the Democratic Socialist – they’re fundamentally the same people, and the label itself is often misappropriated by them from more legitimate uses) talks about inequality, they’re referring specifically to the difference between wealth and income between different classes. More broadly, inequality can also refer to disparities in abilities, motivations, and capacities. A fundamental part of any social science is to examine the distribution of attributes among members of a group, and the most common observable result of that is a “bell curve” in which most people are “about average”, some people might fall far short, and others may excel way beyond. This is the basis for inequality – that by either the accident of birth, the choices we have made, or the random opportunities that have come our way in life, we have all arrived at a state in which we are unequal. Then we begin to interact with each other through voluntary social exchange according to a system of rules which we either decide on as part of the interaction, or which were already in place before we came along. The latter case refers to “Institutions”, though economists might refer to them as “games” for the sake of analysis. Life is a series of such games, and the cumulative performance across those games is what determines our position at any given point in time. You can, through voluntary attentional effort, find the set of games your particular gifts are best suited to, and be successful. Or, you can through a combination of individual stupidity and laziness, play whatever game comes your way and badly, and wind up being quite unsuccessful. This is the reality of capitalism – that because it depends on voluntary interactions, nobody is likely to force you to play the right games, to win those games, and to be successful.

    And this is all beside the point. Inequality doesn’t matter. The peculiar and pathological obsessions of the left with inequality and exacting retribution against the 1% for the crime of being successful is undermined by one simple fact: that the absolute most impoverished Americans at the bottom 10th percentile of the American wealth distribution are richer than 99% of the rest of the world. We have the wealthiest, healthiest, fattest, and most education poor people in history. The fundamental social problems of our time are poorly encapsulated by the jealous and cynical pronouncements of inequality by which Marxist ideologues seek the grant of a cudgel in the form of tax policy to punish success. There is no solution within Marxism which allows for individuals to be elevated out of poverty, and here I will steal from the Marxist’s tendency towards historiographic analysis as the basis for drawing conclusions: In every case that socialism has been tried, it has failed disastrously, killing millions through starvation, disease, and murder. In every case that free-market capitalism has been tried, it has succeeded wildly. So if we want to address the social evils that still exist in the form of poverty, access to affordable healthcare, affordable housing, affordable education, and increasing the disposable income of individuals such that they can better enjoy the fruits of their labor (all of which are laudable goals), then we need to get government out of our back pockets, out of our business, and let Americans be economically free again.

    * The Heritage Foundation, “2019 Index of Economic Freedom”. https://www.heritage.org/index/ranking
    * Trading Economics.com | US Bureau of Economics, “United States Labor Force Participation Rate”. https://tradingeconomics.com/united-states/labor-force-participation-rate
    * Bureau of Labor Statistics, “What can labor productivity tell us about the U.S. economy?”. https://www.bls.gov/opub/btn/volume-3/what-can-labor-productivity-tell-us-about-the-us-economy.htm