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Saturday, December 30, 2017

The Wealth Gap Isn’t a Crisis, It’s a Good Sign

When authorities attempt to equalize outcomes, they inadvertently create a permanent underclass.

The wealth gap is getting a great deal of attention recently. USA Today, CNN, and the Urban Institute have all recently published stories chronicling wealth gap disparities. The New York Times, after stating global inequality has stabilized, proclaimed, “But here’s the bad news: The respite probably won’t last.

The criticism of the wealth gap is a criticism of individual liberty and the free market.

A gap is created between those who meet the needs and desires of others in an extraordinary way and those who do not. How So?

Humans are complex, and that complexity is understood by considering all the various wants and needs we have. The similarity in general wants and needs is obvious, but so is the complexity of satisfying them. Generally, humans want/need housing, but have you ever seen two homes that are identical? The exact same aesthetic, inside and out? What about the music playing on Pandora?

The complexity of our desires, right down to the music we listen to, is best met by a system that allows the mutually beneficial exchange between those who create music and those who want music. The exchange benefits both parties. One party enjoys the product, and the second creates income which can turn into wealth. As a specific musician’s music satisfies more people’s wants, their income increases to the point where profit (income exceeding expenses) is realized and wealth (the accumulation of assets) is created.

The market is a mechanism that rewards those who meet the needs of others. Those who meet the needs of others best are compensated accordingly and create wealth faster than others. Thus a gap is created between those who meet the needs and desires of others in an extraordinary way and those who do not. As strange as it seems, Taylor Swift is compensated more than the Avett Brothers and has accumulated more wealth. There is a gap.

Therein Lies the Problem

Critics of the wealth gap make a moral judgment that regardless of who serves the wants/needs/desires of others more, one individual or group is more deserving. This person, business, or industry deserves more wealth because they are more meritorious. The Avett Brothers deserve more because their music is more authentic than Taylor Swift’s, and the gap in wealth should be lessened. The beginning of the totalitarian state finds its roots in this shift from a free market to a planned market.

The liberty of the individual to create and maintain wealth is subordinated to an outcome of equalized wealth that authorities determine for the rest of the population. Either taking from those who create wealth (Taylor Swift) by satisfying the needs of others in an extraordinary way and redistributing it to those who do not (The Avett Brothers), or barring the individual from participating in the market altogether.

The satisfying of wants and the creation of wealth benefits all, especially the poor. Is There Really a Wealth Gap Problem?

The wealth gap is not a problem. It is the product of individuals using their liberty to pursue interests that are most satisfying to them: either producing goods and services for others or consuming what others produce. Those who serve many accumulate wealth.

There is a problem when there is no wealth gap. Through various means of wealth redistribution, authorities attempt to equalize outcomes and inadvertently create a permanent underclass. Also, the reduction in wealth via property confiscation reduces the incentive to meet the needs of others. Fewer goods and services are produced and less wealth is created. Ultimately a death spiral occurs, and we all lose.

The satisfying of wants/needs/desires and the creation of wealth benefits all, especially the poor. The gap is still there but the standard of living for the poor has increased dramatically. What were once luxuries, financially available to only the wealthy, have become ordinary possessions for even the “poor.” Refrigerators, air conditioners, automobiles, telephones, computers, and washers and dryers have become commonplace. Why? Because the creative and industrious had the freedom to serve the needs of many, lifting the standard of living for both parties. The consumer has their needs met and the producer has created wealth.

  • Jay Owen lives in West Lafayette Indiana along with his wife of 37 years, 3 dogs, and 12 cats.