Income Inequality

There is no such thing as “income inequality.”  It’s true that some people make more money (income) than others, and it’s true that a few are born having more money than others.  But all money accruing to households is earned in one way or another.   (By the way, note that governments earn no money.)

The income inequality thesis infers that income across the population should be level, more or less.  It is based on a worldview (a “fundamental cognitive orientation”[2]) that a CEO is just as important to society as a janitor.  From a human standpoint, that is valid and is expressed in our Declaration of Independence (that all men are created equal) and codified in our Constitution as equality under the law – “the law” being a synecdoche for the system of rules governing social and economic interactions of individuals and groups of individuals.    However, that CEOs and janitors are equals before God and the law has no validity from the standpoint of income expectation.  The Declaration makes no mention of income equality. The Constitution levels the playing field, not wealth.

Income is the monetary value of work performed by an individual within an organization created to produce something of higher value, and sold in the marketplace of goods and services.  (Wealth, its corollary, is the accrual of income and property through savings or investment.) The individuals themselves come from a marketplace of skills: the labor market.  The fundamental law of market value (fundamental as in: the law of gravity) is scarcity. The scarcer, or less common, the good or service is, the higher its value. That is why gold has more value than iron.  In the labor market scarcity can also be thought of as unique or specialized skills. For example, engineers have specialized skills that few people have. Since there are fewer engineers than janitors, the market value of engineers is higher.

The same applies to Chief Executive Officers.  A CEO creates value by managing the organization of individuals, their skills, and resources to produce a good or service that will be highly valued in the marketplace. A CEO possesses a rare blend of skills such as leadership, communication, industry experience, salesmanship, corporate law, accounting, finance, and likely has an MBA.  The CEO’s value is her/his ability to maximize the income of the organization as a whole.  Few individuals combine those skills effectively, and the most successful are in high demand.  Organizations will outbid each other to attract the most successful CEOs.

By comparison, the skills required by janitors are common, so the value of janitorial labor is relatively low.  That said, janitors that work in successful organizations generally have higher incomes and better benefits.  Furthermore, there is no reason why a wise janitor’s children cannot excel in school and in life to become engineers or CEOs.

To summarize, income inequality is a concept ignorant of the market value of labor. It is a petty emotion rooted in envy and covetousness that demeans the efforts of individuals to realize their potential.  Equality of opportunity is what America is all about.  And while it is true that we can’t all be CEOs, it is also true that we shouldn’t all aspire to be janitors.

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