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Tuesday, September 21, 2010

Is Income Inequality Evil?

Some pro-State trolls say "Income inequality is evidence that the US economic system is unfair." An unequal distribution of wealth is not de facto evidence of corruption.

The problem is the source of income inequality. There are two possibilities:

  1. Income inequality due to unequal political connections.
  2. Income inequality due to unequal ability and skills.
(1) is evil. (2) is not evil. You can't pass laws that prevent political inequality. In fact, more laws exacerbate political inequality. If you make ability inequality illegal, that's the path of economic collapse.

One example of unequal political ability is taxi medallion ownership. The taxi medallion owners collect economic rent, due to the value of the medallion and the State extortion racket. It's illegal for me to start my own taxi business, unless I purchase a medallion. Other examples of political inequality are Con Ed, Cablevision, Time Warner Cable, FRE, and FNM. Those executives have an explicit State-backed monopoly. Their income is economic rent, rather than due to their awesome business skills.

100% income equality is attainable only via absolute Communism. Everyone works for the State, and the State parcels out food and property. Even under such a system, better-connected people get more stuff. In the Soviet Union and China, Communist Party members had perks and wealth that the slaves didn't get. Such a system is a proven failure.

The USA is a system of partial communism. The US government exerts as much control over the economy as in a Communist dicatorship. In fact, the US government may have more power than the government in China or the Soviet Union. By giving the slaves an illusion of freedom, that creates more wealth for State thugs to extort/extract. This enables a bigger and more powerful government.

Suppose the top 1% of workers are 100x more productive than everyone else, and everyone else has equal ability. (The distribution of software engineer ability approximates that, and I notice talent differences in other businesses also.) In a really free market, with such an ability distrubution, the top 1% will control 99% of the wealth legitimately.

However, in the corrupt US economy, "difference in political connections" matters more than "difference in ability".

Consider Warren Buffet. His father was a Congressman! He was born in the top 1%+ already. An equally skilled investor, lacking his connections, would not be as successful.

Consider Bill Gates. His parents were well-connected lawyers. His mother was friends with someone on IBM's board of directors! Bill Gates started out in the top 1%+.

An extremely skilled worker, lacking the connections of Gates/Buffet, would not have been as successful. Gates and Buffet are not exactly coming-from-poverty success stories. Gates and Buffet are hyped as American economic successes, but they came from very privileged backgrounds. Barack Obama's parents also had impressive political connections.

Inequality of wealth is not de facto evidence of corruption. Laws that "reduce wealth inequality" punish productive workers and benefit political insiders. That's the real reason Warren Buffet advocates for high taxes. High taxes make it hard for non-insiders to accumulate wealth and influence.

"Those greedy State parasites!" is corrupted by State propaganda into "Those greedy productive workers!" Laws that attempt to reduce wealth inequality make it easier for insiders to profit at the expense of productive workers!

Income inequality is not de facto evidence of a corrupt system. Is economic inequality due to unequal connections, or unequal ability? There's nothing immoral about unequal ability. Most income inequality in the USA is due to unequal political connections, rather than due to unequal ability.


Trufu said...

"'Those greedy State parasites!' is corrupted by State propaganda into 'Those greedy productive workers!'"

Hahaha. That's too funny!

Anonymous said...

Although this is off-topic, FSK argues there should be competition in services including the police. Monopolies lead to bad service.

I've just read in the Daily Mail, that one old age pensioner briefly left his house for a walk. A gang of Lithuanians broke into his house by levering a door with a screwdriver, changed the locks and took over the place.


He told the police. Despite breaking and entering being a crime, the police refused to do anything saying it was a "civil" matter. It is not. Breaking and entering is a criminal offense.

The UK police are useless.

If you drop a piece of litter accidentally in the street or if a community service policeman thinks you have briefly ridden your push-bike on the pavement, the whole force of the police will be called out to fine and prosecute you. Recently a World War II veteran was harassed into a building by community service policemen that said they saw him ride his bike on the pavement.

The police do nothing to stop criminal gangs from overseas breaking into your house and locking you out, but if you drop a bit of litter on the floor you will harassed by them.

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