INCOME INEQUALITY AS POLITICAL BLUDGOEN
As the 2014 mid-term election cycle begins, big government politicians are starting to use the phrase “income inequality” as a talking point. It must be the new focus group tested phrase that appeals to emotions, which is why politicians are using it. The political solutions concerning “income inequality” elicit an emotional frenzy among the economically ignorant, that is difficult to overcome with logical analysis about the economic reality of “income equality”.
INCOME INEQUALITY IS REALITY
The politically self-righteous start from the premise that income inequality is a problem with the free market that shouldn’t exist and something has to be done about it. The political solutions they invoke are simply the forcing of what they want done for the voluntary decisions individuals have made in the market process. These solutions always benefit the politicians at the expense of everyone, including the people they are purporting to help. The invented problem of “income inequality” isn’t a problem with the laws of economics. Inequality in general, and income inequality in particular, are realities of life, and putting the word income in front of the word inequality doesn’t change that reality. These invented problems are made worse when we try to solve them through the political process.
INDIVIDUALS CAN’T BE EQUAL
The simple reason there is income inequality is because people aren’t equal. People have different skills, different desires concerning the use of those skills, different desires on how productive they want to be, with all of these being influenced by where they were born, who their parents are, how much education they have, and who they gravitated to outside of their family structure, among many factors. Could a crab fisherman in Alaska develop the skills or have the desire to grow oranges, or could an orange grower in Florida develop the skills or have the desire to fish for crab. How many hockey players come from the state of Hawaii, and how many surfers come from the state of Minnesota. The fact that we are individuals, means we are not the same, which means we are not equal.
GREEDY CONSUMERS SET WAGES
Another reason for income inequality is the consumer decides peoples salaries. What a person gets paid isn’t decided by the boss, it is decided by what the consumer will pay for a particular good, or service. The price of a good isn’t decided by adding up the cost of all the material and labor used to produce it, and the consumer pays that price. What really happens is the entrepreneur takes a risk thinking that consumers will pay a certain price for a particular good and then goes about trying to produce that good at a cost lower than the price he thinks the consumer will pay. The wages of workers are determined by what the consumer will pay for the finished product. The cost of labor is part of the cost of production, nothing more nothing less. Marxist thinking has so permeated our society that we think labor is sacred and shouldn’t be ruled by something as heartless as economic laws. When the cost of production rises, businesses can’t just raise prices to cover the cost, if this were the case no business would ever go under. Put another way if business could have higher total revenue by simply raising prices they would have already raised them. If you are mad about income inequality, don’t point your finger at the greedy owner of the business for not paying a higher salary, blame the greedy consumer for not being willing to pay more for the product. This Peter Schiff Video: Will Wal-Mart Customers Support Higher Wages For Wal-Mart Workers? , at economicpolicyjournal.com, will show you how eager people are to pay higher prices for their consumer goods.
In the next post we will discuss two ways politicians try to fight income inequality, 1) Raising the minimum wage and 2) Extending unemployment benefits. Do they really work, or do they benefit the politicians prospects for reelection?
AUSTRIAN ECONOMICS ADDICT 