The Fallacy of Income Inequality

There was a delicious ditty in the news a few months ago about how the world’s wealthiest 62 persons own more assets than half of the world’s population:

Last year, just 62 individuals held wealth equivalent to the amount owned by 3.6 billion people, about half the world’s population. That’s according to a new report by Oxfam published ahead of the World Economic Forum in Davos, which aims to show just how deep the gulf of inequality has become.

Ah, the canard of so-called “income inequality.” The feeling by liberals -- especially American Democrats -- that greedy conservatives are hoarding too much of the world’s finite wealth for themselves, thereby denying the hard-working Average Joe and Jane (particularly Jane) of their right and ability to earn a fair middle-class wage.

If Bill Gates or Warren Buffet -- no, wait, not them; they’re liberal, so they’re ok -- if the Koch brothers didn’t selfishly stockpile all that money for their own coffers and instead “paid their fair share,” then that extra taxed money would somehow miraculously find its way directly into the pockets of the “deserving,” and income inequality would be a thing of the past.

“Income inequality” is an artificial, contrived term that has no meaning at all in the real world. The relative income of any two persons is irrelevant. Bill Gates’ next million in income does not take food off my table or negatively impact on my ability to live my life. Conversely, if Gates were to see his income reduced, that reduction would not redound to my direct financial benefit in any way whatsoever. Our two financial situations are unrelated. Unrelated. If some random person hits the Powerball lottery and becomes an overnight half-billionaire, their stroke of financial fortune does not negatively impact me at all, despite our newly-created “income inequality.” So go ahead. Win the lottery.

The issue is not income inequality. The issue is income sufficiency.  Individuals need an income sufficient to meet their needs with respect to adequate housing, food, clothing, medical care, education and entertainment. An expanding economy that generates good-paying middle-class jobs does this -- it’s not done by “taxing the rich.” The fact that our economy hasn’t been expanding in any sort of meaningful way -- far less than in past historical “recoveries” -- and that wages are so stagnant for the working class is what has led to this feeling of economic malaise. Income inequality does not come about because the economic wealth is a finite, static pie of 10, of which the wealthy have 8, leaving only 2, when you need 3 to live nicely. On the contrary, if you need 3 to pay your bills, feed and clothe your kids, and go on a decent vacation each year, then whether the so-called wealthy have 8 or 9 or 18 is irrelevant. All that counts is whether or not you have your 3. Income sufficiency.

The key to ensuring rising wages is not by “increasing the minimum wage.” The key to rising wages is an expanding economy that generates enough good, skilled jobs that companies essentially compete with each other for the best workers and then pay them enough to get them to join their company. This is the way that recoveries/rising wages have always worked.

But under the Obama administration’s seven-plus years of business-hostile policies, businesses have been taught to expect punitive taxes, unrelenting regulations and paralyzing uncertainty about what’s coming down the pike next. When an entity is financially uncertain -- whether it’s an individual, a family or a large business -- they ‘play it safe,’ take no chances, don’t expand, don’t spend, don’t hire more than absolutely necessary.

America’s economy is barely expanding -- we’re suffering through the weakest growth of any recovery in the last 50+ years. So the Labor Participation Rate remains near 40-year lows because so many displaced workers have dropped out of the labor force. Too many of those that have found work are simply happy to have any job, even at a lower pay rate than 10 years ago, and far too many are working multiple part-time or seasonal jobs, trying to stitch together some semblance of a reasonable income. That’s why the monthly Unemployment number and the “jobs creation” number are now meaningless, politically-driven fabrications.

The "raise the minimum wage" issue has long been a rallying cry of Democratic politicians in their ongoing attempt to paint business as evil Republican entities and portray themselves as the saviors and champions of the working-class poor and underprivileged.

That’s so deceptive, and even though many liberal politicians likely know better, they’re only too happy to publicly perpetuate the fable in order to curry favor with a sympathetic liberal media and the throngs of economically ignorant liberal voters who simply want the Government to somehow guaranty their income.

Minimum wage is exactly what it says it is: the minimum amount by law that someone can be paid. When Democratic politicians grandstand about how 'the head of a household working a 40-hour week making minimum wage is below the poverty line, so how can we as a country in good conscience allow this to be,' they're being intentionally misleading.

Virtually no one who works a full 40-hour week is making minimum wage, not for long anyway. By the time you're a full-time employee -- valuable enough to the company that employs you that you're working 35 or 40 hrs/wk -- you're not being paid minimum wage. Not for long.

So that entire '40-hrs at minimum wage is below the poverty line' line is just a throwaway lie. Unless voters fall for it. Then it's a brilliant lie.

The whole wage-worker-business relationship has been so distorted by the Democrats that that's a big reason our national work ethic is going awry and the entitlement mentality prevalent among so many is out of control.

The hard truth is that workers and wages are simply business expenses, to be minimized and utilized as effectively as possible. Private-sector business doesn't exist to provide jobs.

A business sets its payroll each year as a percentage of its projected revenues, just like it treats any other expense, like utilities, rent, insurance, advertising, etc. If the company has budgeted, say, $1 million for payroll, then that’s what they’ll spend (within their projected business plan). If the Government mandates a higher minimum wage, then the company will simply make do with fewer minimum-wage workers.

Businesses exist to make a profit, to be self-sustaining, and to grow their revenues and profits in their competitive market sphere. In addition to carving out a meaningful market niche with its product or service, a successful business -- whether a high-tech manufacturer, an importer/distributor. an accounting or marketing services or law practice, whatever--has to make the best, most efficient use of its finite resources.

If you own a business, you choose the best phone or utility or IT service for the best price. You do the same with your workforce. Salaries are an expense just like heating bills are. No difference. Just as the business owner wouldn't and shouldn't pay extra to the electric company just to be nice to them, so too, they don't overpay salaries/benefits and wages. They pay good wages to attract good, skilled, productive workers, not for any other reason. Not to be "nice."

But here’s the ironic aspect of this issue that operates to the average worker’s advantage and unintentionally but directly addresses and solves the entire “income inequality” issue: Profitable private-sector companies in a capitalist economy generate more high-paying jobs than under any other economic system in the world, because they’re willing to pay talented, productive workers higher wages, since those workers will help the company maximize their profits.

Therefore, even though it’s a business’s goal to minimize expenses, including wage expenses, American capitalistic businesses end up employing more people at higher wages than anywhere else, under any other economic system. That why US home ownership, cars, air conditioners and TVs per capita, etc. used to be so much higher than anywhere else in the world. In other words, more American workers enjoyed income sufficiency than anywhere else in the world.

That is, until we distorted that system by reducing the everyday worker’s incentive by providing too high a level of guaranteed Government benefits in so many areas. (Funny how unemployment miraculously went down when the year-long unemployment benefit was cut back to 26 weeks. That’s simply one example.)

If the big-picture business climate is favorable, stable and predictable (as determined by Government corporate tax policies, trade agreements and environmental policies), then companies will be confident about expanding (and new companies will be confident about starting) and they’ll hire workers more quickly and more often, at good wages. More workers will enjoy “wage sufficiency,” regardless of what Bill Gates makes. If socialist/environmentalist/punitive Government meddling has distorted and weakened the profit/hiring relationship, then employment growth will slow and wages will stagnate. As they have.

The employment problem is twofold: 1) Having downsized to the bone in the Great Recession and under the Obama anti-business cloud, companies now realize that they can make do with significantly smaller workforces, and 2) companies will never again trust Government to stay out of their hair. It’ll be very tough to “un-ring” that Government-caused anti-hiring bell. Remember, it’s income sufficiency that counts, not some arbitrary income differential (“inequality”) between the so-called 1% and the rest of the workforce.  Scaring businesses away from hiring and threatening to impose ever-higher redistributive taxes is not the answer.

There was a delicious ditty in the news a few months ago about how the world’s wealthiest 62 persons own more assets than half of the world’s population:

Last year, just 62 individuals held wealth equivalent to the amount owned by 3.6 billion people, about half the world’s population. That’s according to a new report by Oxfam published ahead of the World Economic Forum in Davos, which aims to show just how deep the gulf of inequality has become.

Ah, the canard of so-called “income inequality.” The feeling by liberals -- especially American Democrats -- that greedy conservatives are hoarding too much of the world’s finite wealth for themselves, thereby denying the hard-working Average Joe and Jane (particularly Jane) of their right and ability to earn a fair middle-class wage.

If Bill Gates or Warren Buffet -- no, wait, not them; they’re liberal, so they’re ok -- if the Koch brothers didn’t selfishly stockpile all that money for their own coffers and instead “paid their fair share,” then that extra taxed money would somehow miraculously find its way directly into the pockets of the “deserving,” and income inequality would be a thing of the past.

“Income inequality” is an artificial, contrived term that has no meaning at all in the real world. The relative income of any two persons is irrelevant. Bill Gates’ next million in income does not take food off my table or negatively impact on my ability to live my life. Conversely, if Gates were to see his income reduced, that reduction would not redound to my direct financial benefit in any way whatsoever. Our two financial situations are unrelated. Unrelated. If some random person hits the Powerball lottery and becomes an overnight half-billionaire, their stroke of financial fortune does not negatively impact me at all, despite our newly-created “income inequality.” So go ahead. Win the lottery.

The issue is not income inequality. The issue is income sufficiency.  Individuals need an income sufficient to meet their needs with respect to adequate housing, food, clothing, medical care, education and entertainment. An expanding economy that generates good-paying middle-class jobs does this -- it’s not done by “taxing the rich.” The fact that our economy hasn’t been expanding in any sort of meaningful way -- far less than in past historical “recoveries” -- and that wages are so stagnant for the working class is what has led to this feeling of economic malaise. Income inequality does not come about because the economic wealth is a finite, static pie of 10, of which the wealthy have 8, leaving only 2, when you need 3 to live nicely. On the contrary, if you need 3 to pay your bills, feed and clothe your kids, and go on a decent vacation each year, then whether the so-called wealthy have 8 or 9 or 18 is irrelevant. All that counts is whether or not you have your 3. Income sufficiency.

The key to ensuring rising wages is not by “increasing the minimum wage.” The key to rising wages is an expanding economy that generates enough good, skilled jobs that companies essentially compete with each other for the best workers and then pay them enough to get them to join their company. This is the way that recoveries/rising wages have always worked.

But under the Obama administration’s seven-plus years of business-hostile policies, businesses have been taught to expect punitive taxes, unrelenting regulations and paralyzing uncertainty about what’s coming down the pike next. When an entity is financially uncertain -- whether it’s an individual, a family or a large business -- they ‘play it safe,’ take no chances, don’t expand, don’t spend, don’t hire more than absolutely necessary.

America’s economy is barely expanding -- we’re suffering through the weakest growth of any recovery in the last 50+ years. So the Labor Participation Rate remains near 40-year lows because so many displaced workers have dropped out of the labor force. Too many of those that have found work are simply happy to have any job, even at a lower pay rate than 10 years ago, and far too many are working multiple part-time or seasonal jobs, trying to stitch together some semblance of a reasonable income. That’s why the monthly Unemployment number and the “jobs creation” number are now meaningless, politically-driven fabrications.

The "raise the minimum wage" issue has long been a rallying cry of Democratic politicians in their ongoing attempt to paint business as evil Republican entities and portray themselves as the saviors and champions of the working-class poor and underprivileged.

That’s so deceptive, and even though many liberal politicians likely know better, they’re only too happy to publicly perpetuate the fable in order to curry favor with a sympathetic liberal media and the throngs of economically ignorant liberal voters who simply want the Government to somehow guaranty their income.

Minimum wage is exactly what it says it is: the minimum amount by law that someone can be paid. When Democratic politicians grandstand about how 'the head of a household working a 40-hour week making minimum wage is below the poverty line, so how can we as a country in good conscience allow this to be,' they're being intentionally misleading.

Virtually no one who works a full 40-hour week is making minimum wage, not for long anyway. By the time you're a full-time employee -- valuable enough to the company that employs you that you're working 35 or 40 hrs/wk -- you're not being paid minimum wage. Not for long.

So that entire '40-hrs at minimum wage is below the poverty line' line is just a throwaway lie. Unless voters fall for it. Then it's a brilliant lie.

The whole wage-worker-business relationship has been so distorted by the Democrats that that's a big reason our national work ethic is going awry and the entitlement mentality prevalent among so many is out of control.

The hard truth is that workers and wages are simply business expenses, to be minimized and utilized as effectively as possible. Private-sector business doesn't exist to provide jobs.

A business sets its payroll each year as a percentage of its projected revenues, just like it treats any other expense, like utilities, rent, insurance, advertising, etc. If the company has budgeted, say, $1 million for payroll, then that’s what they’ll spend (within their projected business plan). If the Government mandates a higher minimum wage, then the company will simply make do with fewer minimum-wage workers.

Businesses exist to make a profit, to be self-sustaining, and to grow their revenues and profits in their competitive market sphere. In addition to carving out a meaningful market niche with its product or service, a successful business -- whether a high-tech manufacturer, an importer/distributor. an accounting or marketing services or law practice, whatever--has to make the best, most efficient use of its finite resources.

If you own a business, you choose the best phone or utility or IT service for the best price. You do the same with your workforce. Salaries are an expense just like heating bills are. No difference. Just as the business owner wouldn't and shouldn't pay extra to the electric company just to be nice to them, so too, they don't overpay salaries/benefits and wages. They pay good wages to attract good, skilled, productive workers, not for any other reason. Not to be "nice."

But here’s the ironic aspect of this issue that operates to the average worker’s advantage and unintentionally but directly addresses and solves the entire “income inequality” issue: Profitable private-sector companies in a capitalist economy generate more high-paying jobs than under any other economic system in the world, because they’re willing to pay talented, productive workers higher wages, since those workers will help the company maximize their profits.

Therefore, even though it’s a business’s goal to minimize expenses, including wage expenses, American capitalistic businesses end up employing more people at higher wages than anywhere else, under any other economic system. That why US home ownership, cars, air conditioners and TVs per capita, etc. used to be so much higher than anywhere else in the world. In other words, more American workers enjoyed income sufficiency than anywhere else in the world.

That is, until we distorted that system by reducing the everyday worker’s incentive by providing too high a level of guaranteed Government benefits in so many areas. (Funny how unemployment miraculously went down when the year-long unemployment benefit was cut back to 26 weeks. That’s simply one example.)

If the big-picture business climate is favorable, stable and predictable (as determined by Government corporate tax policies, trade agreements and environmental policies), then companies will be confident about expanding (and new companies will be confident about starting) and they’ll hire workers more quickly and more often, at good wages. More workers will enjoy “wage sufficiency,” regardless of what Bill Gates makes. If socialist/environmentalist/punitive Government meddling has distorted and weakened the profit/hiring relationship, then employment growth will slow and wages will stagnate. As they have.

The employment problem is twofold: 1) Having downsized to the bone in the Great Recession and under the Obama anti-business cloud, companies now realize that they can make do with significantly smaller workforces, and 2) companies will never again trust Government to stay out of their hair. It’ll be very tough to “un-ring” that Government-caused anti-hiring bell. Remember, it’s income sufficiency that counts, not some arbitrary income differential (“inequality”) between the so-called 1% and the rest of the workforce.  Scaring businesses away from hiring and threatening to impose ever-higher redistributive taxes is not the answer.