Account Login

1,989,373 Views
Sep 5, 2016
Presented by
John Tamny

What if everything you've heard about income inequality is wrong? What if it's actually a good thing for there to be people who are rich and people who aren't? John Tamny, editor of RealClearMarkets, clarifies one of the big misunderstandings of our time.

Income inequality is a sign that people have the freedom and opportunity to make the most of their talents and hard work.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Read George Will on the societal benefits of income inequality.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

Want the U.S. economy to be wealthy? Then you must accept that it will also be unequal.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base. Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source
  • Related reading: Economic Facts and Fallacies – Thomas SowellView Source

Capitalist economies may have more inequality, but they have far higher standards of living for everyone.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base. Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source
  • Related reading: Economic Facts and Fallacies – Thomas SowellView Source

Thanks to capitalism, most “poor” Americans have a higher standard of living than most middle class Europeans.

  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base.View Source
  • Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source

Capitalism rewards entrepreneurs who make previously expensive luxury goods (cell phones) affordable for everyone.

  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base.View Source
  • Consequently, capitalism improves the lifestyle equality of society.View Source
  • Examples: Michael Dell made computers affordable for all members of society, not just the wealthy. Jeff Bezos made shopping easy and time-saving for everyone. Henry Ford made cars affordable for the average American. Steve Jobs made smartphones affordable for most Americans.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source

Economic equality and prosperity are mutually exclusive.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base. Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source

Wealth concentration in America is based far more on talent and hard work than on inheritance.

  • The Forbes 400 wealthiest individuals is a fluid, constantly-changing group, demonstrating that wealth in America is a market process, not a hereditary title.View Source
  • Read George Will on the societal benefits of income inequality.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

A society cannot both be wealthy and economically equal.

  • Successful entrepreneurs improve the lives of their customers.View Source
  • A recent example: The “astounding rise” of Uber now allows average citizens to be chauffeured in high end luxury vehicles, once a privilege only for the rich.View Source
  • Read John Tamny on income inequality.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

The Forbes list of the 400 wealthiest individuals is constantly changing, showing that capitalism is not an inheritance-based system. 

  • The Forbes 400 wealthiest individuals is a fluid, constantly-changing group, demonstrating that wealth in America is a market process, not a hereditary title.View Source
  • Read George Will on the societal benefits of income inequality.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Economic Facts and Fallacies – Thomas SowellView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source

The lower classes in capitalist societies have far more wealth than the lower classes in socialist societies.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base. Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

Thanks to capitalism, 50-inch plasma TVs fell from $20,000 to $550 in just 15 years, making them affordable to more and more people. 

  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base.View Source
  • Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Economic Facts and Fallacies – Thomas SowellView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

It’s better for an economy to be unequal and wealthy, than equal and poor.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base. Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source

The alternative to a capitalistic, wealthy, unequal economy is a socialistic, poor, equal economy.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Capitalism naturally drives entrepreneurs to create increasingly affordable products and services in order to increase their customer base. Consequently, capitalism improves the lifestyle equality of society.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Economic Facts and Fallacies – Thomas SowellView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

Economic inequality is not a bad thing. It’s a natural result of a free, wealthy economy.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Read George Will on the societal benefits of income inequality.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Economic Facts and Fallacies – Thomas SowellView Source
  • Related reading: Economics in One Lesson – Henry HazlittView Source

Economic inequality is a good thing because it motivates people to make more money, and ultimately drives innovation.

  • Income inequality motivates people who want more money to create profitable companies (i.e. companies that provide something people want). As economist John Tamny argues, “[I]t is gaps in wealth that drive creativity among the citizenry … their innovations redounding to individuals of all income classes.”View Source
  • Read George Will on the societal benefits of income inequality.View Source
  • Related reading: Equal Is Unfair: America's Misguided Fight Against Income Inequality – Don WatkinsView Source
  • Related reading: Popular Economics – John TamnyView Source
  • Related reading: How an Economy Grows and Why It Crashes – Peter D. SchiffView Source

There has been a lot said and a lot written about income inequality – about how unfair it is that a few people are very rich and the rest of us aren’t; that the income gap between the wealthy and even the middle-class, let alone the poor, is so large.

There’s only one problem with this complaint.

It’s wrong.

Income inequality is actually a good thing -- when it is the product of a free market economy.

And your own life proves it!

An economy is made up of millions of individuals making decisions about their own lives – where and how much they want to work, what they want to buy, and so on.

You are one of those individuals.

In a country like the United States, you are free to pursue a path in life that you believe best suits your talents. That talent might be teaching, or making music, or banking, or starting a small business, or raising a family. Whatever it is, this freedom helps to make life enjoyable, exciting and meaningful.

But it’s also an expression of inequality. This is simply because we’re all different. We have different talents, different temperaments, different ambitions.

That’s okay because – again in a free society – we can seek out opportunities that play to our personal strengths; that distinguish us from others.

If you find what you’re really good at and work hard, you might have great success and make a lot of money. If you’re an outstanding athlete, I’ll buy a ticket to see you play. If you’re a savvy investor, I’ll give you some of my money to invest.

As long as you have the freedom to guide your own destiny, you have a chance to reach your full potential – achieving success, however you define it. But if someone, say, a government bureaucrat, told you that your ambition had limits, that there was a ceiling above which you could not rise, I doubt you’d be happy about it. You’d feel like you were in a straightjacket.

Forced equality means less opportunity to pursue what makes you individually great..

But what about the growing gap between the rich, the 1%, and the rest of us, the 99%, that one hears so much about? Isn’t that a bad thing?

Again, the answer is no.

Here’s why:

In a free market economy people become wealthy making what the rich enjoy today into something almost everybody can enjoy tomorrow. The rich are the test buyers.

Consider the cell phone. Now we all have them, but when Motorola manufactured the first one in 1983 it was the size of a brick, had a half-hour of battery life, reception was terrible, and calls were very expensive. It cost $4000. But if no one had bought that $4000 brick, there wouldn’t be a $40 cell phone today.

In the 1960’s a computer cost over a million dollars. Nowadays, thanks to billionaires like Michael Dell, we have incredibly advanced computers that cost us a few hundred dollars.

Remember what an out-of-reach luxury flat screen TV’s once were? Only the rich could afford them. Today your living room is essentially your own private cinema.

The free market is about turning scarcity into abundance. What was once available to the few is now available to the many. Wealth inequality is an important corollary to that truth.

So, should I resent the people who became wealthy because they have more money than I do, or should I be grateful for the economic system that allows them to enrich my life and the lives of millions of other people?

This feature of the free market – income inequality – can appear terribly unfair. But with a little further investigation, the real picture becomes clear. Income inequality makes what once seemed like impossible luxuries available to almost everyone; it provides the incentive for creative people to gamble on new ideas; it promotes personal freedom, and rewards hard work, talent, and achievement.

In sum, income inequality signals that individual liberty, opportunity, and innovation are all present in a free economy. Pretty good for something that’s supposed to be so bad.

Two final points:

The 1% Club is always open to new members. And you don’t have to be in the top one percent to have a very good life. And that, not the existence of the very wealthy, is what matters most.

I’m John Tamny, editor of Real Clear Markets, for Prager University.

 

You Earned A Badge

Course: Income Inequality is Good

Join PragerU now to claim it

  1. Watch The Video
  2. Claim Your Badge
  3. Take the Quiz
  4. Gild Your Badge

Like what you see? Support PragerU today