Monday, October 3, 2011

Why the Disparity between Rich and Poor Should not Concern You


"Incessant preoccupation with statistical disparities is one of the luxuries of an affluent and sheltered life. Do not expect someone who has ever had to go hungry to get upset because some people can only afford pizza while others can afford caviar." -- Dr. Thomas Sowell

When asked to cite the single largest problem facing the country today, Republicans will probably point to our debt and deficit. What do Democrats point to? Generally, they point to the increasing, historically large income disparity between the very rich and the poor/middle class. I’ve spoken at length on this blog about how politicians have no business engineering certain idealized income levels. Governments can only operate by force, and they have no moral right to use force to bring about whatever disparity in wealth they personally feel is in the “common good”. As far as the constitutional job description of a politician, I feel I’ve sufficiently explained why this disparity should not concern a politician.

But should it concern you and I? Let’s forget constitutionality and social contracts and all that political ideology for a moment. As compassionate people, should it trouble us that Rich Bob makes X amount more than Poor Tom? Ideally, should there be a limit on the value of X, whether or not governments have a right to enforce that limit?

I don’t think so. If that sounds heartless to you, I believe you’ve made a hasty assumption about the relationship between the rich and the poor, and therefore have a false conception of economics. That assumption is the one first promoted by Marx and Engels and ever since dispersed by socialists and the political left: that in order for the rich to get richer, they must abuse, take advantage of, and manipulate the poor. They view wealth as a limited pie which must be divvied in a certain manner, and that if any one  person’s wealth is to increase it must cut into somebody else’s piece of the pie. When viewed this way, it appeals to our sense of fairness that everyone should receive an equal slice of the pie, doesn’t it? That sentiment is what drives communism. But that’s not the only way to increase the size of everyone’s piece; the other way is to get a bigger pie! Expand the diameter! At a party, if you run out of pizza and have a lot of hungry people needing to be fed, you don’t try to reapportion the slices that have already been cut; you buy more food! What the free market facilitates that communism overlooks is this added food. It’s called wealth creation.

Just because the disparity between the two groups is increasing does not mean that the poor are getting poorer. What it could mean is simply that more wealth is being created and BOTH are becoming wealthier, just that the rich are doing so more rapidly. Let’s demonstrate this mathematically. Imagine a graph with two lines, line A and line B. Line A is the real wealth level (not the income level, real wealth is different) of a poor person, and line B is the real wealth of a rich person. The variable X measures the gap between those two lines at a given point in time. Now increase the slope of line A by a little, and decrease the slope of line B by a lot. Both lines get higher, and so does X. But the poor haven’t been harmed by this change, they’ve been helped by it.

Everyone in society can still get wealthier at the same time, and in a growing economy, they are. They may not have a greater purchasing power compared to one another, but society as a whole to become collectively more affluent. They can have a greater abundance of available resources or material possessions than they did before, even if they have a lesser abundance than their neighbors.

It is not that I don’t care about the poor, or don’t want to help the poor. Truly, if the lot of the poor were steadily getting worse, I would be concerned. But economically, the disparity between the rich and poor has nothing to do with this. The variable we should be watching (as humanitarians, remember, not as politicians) is not X, but the slope of line A. Is the wealth of the poor increasing or decreasing? Is their abundance of resources and material possessions increasing or decreasing? Truly, that line is connected with everybody else’s. The most tried and true way to eliminate poverty is by creating wealth, even if at first it is created disproportionately for the already wealthy.

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