Sunday, April 1, 2012

Economic Inequality

Derek Jeter has made hundreds of millions of dollars. The sanitation worker who picks up the garbage at Jeter's home makes a fraction of that amount. What accounts for that discrepancy?

People are willing to pay high prices to watch Jeter play baseball and companies are willing to pay Jeter large amounts of money to speak favorably about their products. Is that wrong?

Why is there a problem here? It is not as if Jeter is the king and his garbage man is his serf. If the garbage man had Jeter's baseball skills and vice versa, then their positions might be reversed. In fact, in future generations that may well happen. Such is life in a free market.

Inequality of income and wealth by itself is of no signficance. It really does not matter. Poverty is a different story, but in the example above there is dramatic inequality of income but no poverty. These are different things and should not be confused.

Jeter is not wealthy because he compelled someone to give him money. He is wealthy because he has a skill and talent that people are willing to pay money to see. The system is working.

The attempt to create equality between Jeter and his garbage man may do nothing more than reduce both of them to poverty. Without a free market, there would be no Jeters and the garbage man would make little or no money because there would be scant tax resources from the Jeters of the world to fund the garbage man's job.

Today in the New York Times, Thomas Friedman has another mindless comment about income inequality that makes one wonder if he thinks before he writes. Those who wish to reduce inequality should address the talents, abilities, education and work ethic of the folks at the bottom of the economic pile. Wealth transfers won't help because they are soon dissipated through foolish behavior.

Free markets provide opportunity for the poorest amongst us. Every society has rich people, but the only societies in the history of mankind that have lifted the living standards of the average citizen are economies with free markets.

Dealing with poverty is an agenda worth working toward. Worry about inequality of income is a fool's game.